Accounting rules and micro entities - when simplification becomes complication

26 February 2009
by eub2 -- last modified 26 February 2009

The European Federation of Accountants and Auditors (EFAA), Europe's leading accountancy organisation dedicated solely to the needs of small and medium-sized businesses, criticised today's communication by the European Commission giving Member States the option to exempt micro entities from preparing and publishing annual accounts.

"This proposal is a step backwards from harmonisation of accounting rules in Europe and further complicates the business environment. Exempting more than 90% of enterprises defeats transparency, said EFAA President Federico Diomeda. Whilst fully recognising that some members truly believe that the public record breaches confidentiality the creation of another business category is yet more unnecessary burden and to define size category a full set of accounts will still be necessary. Moreover, a functioning internal market depends on transparency and cross-border consistency, which is of the utmost importance, as many small enterprises frequently undertake international business and enter into hedging arrangements to protect against currency fluctuation."

The increasingly important credit insurance requirements within the funding of receivables rely heavily upon information provided by the public record and trade credit will be adversely affected should the free flow of information be reduced. By allowing Member States to opt out the Commission proposal would be in danger of destroying a commercial facility forged over the years since the first harmonisation directives 30 years ago.

Under the Commission proposals it should be understood that micro businesses will still have to prepare accounts for tax purposes, for fulfilling bank and credit requirements and for very necessary management and other stakeholder needs. The actual filing of documents for the public record is no burden in an electronic age. From an audit perspective the public record ensures easy credit checks regarding audit client receivables and supplies. There is no doubt that tax revenue department cross checks with the public filing authority  will encourage consistent document filing within the compliance regime thereby protecting the public purse.
 
"At a time when the Commission has committed to put the "Think small first principle" at the core of legislation and policy we regret that the initial proposal appears to ignore the needs of the millions of SMEs within the Community. The Communication comes without a proper impact assessment and a full consultation process on the needs of users of small businesses' financial statements, added Mr Diomeda.

"Modernisation of accounting rules should be a priority wherever it is appropriate but SMEs do not require patronising. They have little interest in measures based on dubious savings figures produced to back up popular political sound-bites having no consideration of real business ", he concluded.

EFAA, the European Federation of Accountants and Auditors for small and medium-sized enterprises, is the umbrella organisation for national accountants and auditors' organisations whose individual members provide professional services primarily to SMEs. EFAA has 12 members throughout Europe representing over 200,000 accountants and auditors.

European Federation of Accountants and Auditors (EFAA)