Institutes exercised over EU accounting

by Rose Orlik

More from this author

26 Oct 2011

  • Comments
European Union flag

INSTITUTES HAVE SCRAMBLED to respond as the European Commission gave its two-pence worth on accounting practices, focusing on SMEs, social enterprise and responsible business.

The ICAEW was first off the mark with a relatively supportive statement, calling the 4th and 7th Accounting Directives "ancient pieces of legislation long in need of an overhaul".

It welcomed the Commission's 'think small first' basis for proposed reforms, which could see SME financial reporting requirements simplified and an end to quarterly updates.

The country-by-country reporting proposal, which would see extractive and logging industries forced to disclose payments to governments, also found favour with the English institute.

"ICAEW strongly supports efforts to improve domestic accountability and governance in resource-rich countries. In principle, we believe that much value can be achieved through country-by-country reporting, particularly in areas of the world where greater transparency is required," it said.

However, the body warned "general-purpose financial reports prepared primarily to meet the information needs of investors" could actually reduce transparency and "would not be appropriate".

Then it beat a retreat to consider the EC's other proposals, which include a package of support measures for companies with a positive social impact and new rules to prevent investors secretly amassing controlling stakes in listed entities.

"The EC is to be congratulated on the comprehensive nature of its review and for its open, inclusive approach to consultation during this lengthy and important debate. We will need time to consider the detail of these new proposals, not least to ensure that accountability to shareholders and protection of creditors will not be compromised," it concluded.

ACCA was more detailed and critical in its appraisal. It stressed the "wider social value of effective accounting and auditing", saying there is "a balance to be struck" with the drive for deregulation.

It nevertheless "shares the EC's concerns" regarding cutting red tape for SMEs and called the 'think small first' approach "an important and positive step for the future development of EU legislation".

Support in principle is, for the most part, all ACCA is prepared to offer. It gave the same reception to the proposed transparency measures, but warned removing the requirement for SMEs to publish their management report "is less welcome".

"This suggests a lack of confidence in the content of the management report, which - given the active international interest in developing narrative reporting - is disappointing."

ACCA welcomed the emphasis on corporate social responsibility in the EC directive - which calls for better disclosure on payments to governments in resource-rich countries - but questioned the individual proposals.

It warned against overly prescriptive and compliance-driven rules, saying: "CSR should ideally be about encouraging companies to adopt business strategies that are driven by socially responsible values and which incorporate an holistic approach to the management of risk."

ICAS was also open to country-by-country reporting, but warned disclosures of this nature could be "voluminous".

Executive director of technical policy and services David Wood said: "We are very sympathetic to their aims, but there are better ways to go about it," suggesting a concise, web-based report on companies' impact in each country would be preferable.

Wood said the institute would be "supportive in principle" of the deregulatory proposals for SME financial reporting.

However, ICAS fears cutting disclosure requirements could spark a "lack of financial discipline" that would inhibit SME growth, as they would no longer have essential information upon which business decisions are made.

"We would be nervous about suspending financial reporting at that level," said Wood.

It is clear the institutes will have much to say on the proposed accounting shake-up, especially when it comes to SME regulation.

Visitor comments

blog comments powered by Disqus

Add your comment

We won't publish your address

By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

  • Send

Charterhouse Accountants

Finance Officer

Charterhouse Accountants, Beaconsfield, Permanent, Full Time, £ Competitive




Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials


Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you



Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.


iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.