Opinion – A standard format for SME accounts is the way forward

Opinion - A standard format for SME accounts is the way forward

A DTI report points the way for the creation of a standard format forsmall company accounts. Jane Crumpton-Taylor explains.

At the end of September, the DTI published a consultative document, Small company accounts: a possible standard format. It includes a 19-page set of accounts into which a company can insert its details. Completion of this standard format is designed to enable the small entity to prepare its accounts and comply with filing requirements for a minimal cost.

The pros and cons

When I was seconded to the DTI in December 1995, my brief was to look at whether such a form was possible. I talked to a lot of people, some of whom said it was not, but on balance the possible advantages to the very small business shone through.

For companies using the standard format, there should be no question of rejection by Companies House because of inappropriate or inadequate disclosure. If accounting professionals use the format, it should leave them more time and the client more money, to spend on advice and assistance.

Banks have indicated they appreciate knowing exactly where to go in the accounts for information; they also think that having boxes makes it less likely that bits of information will be forgotten.

What are the perceived problems of a standard format? The most common objection was: why bother? The answer is that there are in the region of 90,000 new small companies registered every year, all needing a new set of accounts. Whenever legislation changes and new accounting standards are produced, a new disclosure wheel is invented by accountants and software houses. The standard format will do the work for them.

Format straitjacket

A standard format was seen by some as a straitjacket hindering helpful developments in accounting. But, in practice, the Small and Medium Enterprise is not at the leading edge of such developments. The complex range of their activities, a filing deadline three months tighter than that imposed on private companies, easier access to professional advice and the anticipation of public scrutiny, means listed companies address new issues long before the small company has to do so.

A common objection to the format was the image of a set of accounts as a unique document for a particular business. However attractive this idea may appear to be, the reality is that the present format is more than adequate and users of accounting packages do not, in practice, have to flex them very much in order to produce accounts which show a true and fair view.

The completion of a form and, in particular, the tick-the-box auditors’ or accountants’ report may offend the self-esteem of some professionals.

However, the standard form of accounts is not designed as a selling document.

That function is better served by a business plan or a separate annual report.

As originally drafted, the format included sections which would have enabled compliance with accounting standards, including FRS3 and FRS8.

That version was several pages longer and the decision was taken by the DTI, in view of FRSSE imminence, to take out, for the time being, compliance with standards from the consultation draft.

Big GAAP/Little GAAP

The FRSSE was available at the time I produced the format and, although the format as originally drafted ignored the FRSSE and sought compliance with the full range of standards, it could be amended to match it. One of the strengths of the format is that it is not intended to stand for all time. I hope it is updated annually, reflecting disclosure and legislative changes up to an agreed cut-off-date.

As a consolidation and condensation exercise, the FRSSE is to be welcomed as a practical way of assisting producers of small accounts in disclosing what is necessary and useful for users. To the extent that the FRSSE distills accounting standards, it integrates well with the standard format.

Where it includes disclosures rarely encountered or poorly understood by the user, such as the Statement of Recognised Gains and Losses, there is currently a mismatch between the standard format and the FRSSE. Indeed, FRS3 is the most problematic of all the standards in this respect. Most FRS3 disclosures can be included only at the cost of brevity and comprehension.

Reverting to pre-FRS3 in the standard format reintroduces extraordinary items and lost exceptionals.

My hope is that after consultation this proposal will, in fact, be reversed.

I suspect that the main beneficiaries of this standard format are not going to be the people reading this article. More likely, the advantages will be felt by the voluntary board members of a service charge company or the director of a small company exempt from audit. Nevertheless, the DTI and I welcome your feedback so that we can take the project forward.

Jane Crumpton-Taylor is Senior Manager at Binder Hamlyn.

Whitepaper

The Future of Finance is in the CFO's Hands

Business The Future of Finance is in the CFO's Hands

3m
Save a Week a Month Consolidating Accounts

Accounting Software Save a Week a Month Consolidating Accounts

4m
Mitigating Risk Through Internal Control

Legal Mitigating Risk Through Internal Control

4m
Could tax season have run more efficiently?

Corporate Tax Could tax season have run more efficiently?

5m

Related Articles

Accordance VAT launches four-day week

Management Accordance VAT launches four-day week

4d Chris Jewers
Existential angst: Accountants have nothing to fear but… everything?

Management Existential angst: Accountants have nothing to fear but… everything?

2w AJ Chambers Recruitment | Sponsored
Is inefficiency stealing your time and money?

Accounting Firms Is inefficiency stealing your time and money?

2y Emma Smith, Managing Editor
CIMA elects new president

Institutes CIMA elects new president

2y Emma Smith, Managing Editor
Transparent currency trade: How to achieve costs visibility

Governance Transparent currency trade: How to achieve costs visibility

2y Emma Smith, Managing Editor
Introduction to KPMG UK’s new leadership team

Accounting Firms Introduction to KPMG UK’s new leadership team

2y Emma Smith, Managing Editor
EY appoints head of UK Infrastructure Asset Intelligence practice

Accounting Firms EY appoints head of UK Infrastructure Asset Intelligence practice

2y Emma Smith, Managing Editor
FRP Advisory expands operation with new office, partner appointments

Accounting Firms FRP Advisory expands operation with new office, partner appointments

2y Emma Smith, Managing Editor