While welcoming the Commission’s “European Economic Recovery Plan” to restore consumer and business confidence – in which the Commission pledges to reduce the burden on small and medium sized enterprises (SMEs) – and supporting initiatives to simplify company law, it appears that the current Commission Proposal to exempt micro-entities from annual accounts requirements precisely fails to address these two issues, and could even lead to the fragmentation of the single market caused by the uneven application of the proposed option to exempt micro-entities left to Members States’ choice.

There are concerned that the accompanying impact assessment amplifies the advantages and fails to quantify and consequently under-estimates the disadvantages of exempting micro-entities from accounting requirements.

According to Dr Steve Priddy, Director – Technical Policy and Research at ACCA (the Association of Chartered Certified Accountants) “only relevant, light touch regulation will bring benefits, what we need before that is a more rigorous, transparent cost-benefit assessment capable of independent evaluation.”

It is hence crucial to conduct empirical research on the way small businesses work and on processes they find vital (e.g. keeping an order book; managing cash flow) before premature decisions are made. This need is now even more keenly felt in the current economic climate where prolonged recession is a distinct possibility.

Last but not least, the reduction of administrative burdens for SMEs must be realised in a coherent and comprehensive manner. The Commission should therefore withdraw its current proposal and come back with a comprehensive proposal of revision of the 4th and 7th Company Law Directives in 2010.

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