A RADICAL new accounting regime set to shake-up the UK’s small business reporting landscape could pose a risk to the British economy as an unplanned by-product of an attempt to slash red tape.
That’s the stark warning from Nigel Sleigh-Johnson, the ICAEW’s Financial Reporting Faculty head as the government publishes its final recommendations on how the new EU Accounting Directive will be implemented in the UK.
Sleigh-Johnson said: “Only time will tell whether the reduction in the information required in small company accounts is a sensible reduction in red tape or a source of risk to the UK economy. ICAEW for one has persistently warned against the potential risk that over-simplifying reporting requirements can have on the ability of small companies to secure credit.”
Under the BIS proposals, set to be enshrined in company law by July 2015 and become effective for financial years beginning on or after 1 January 2016, the most profound changes relate to small businesses.
A legal restriction will be placed on the amount of information required in small company accounts, while small businesses will be denied the option to file so-called abbreviated accounts at Companies House. But they may be allowed to both prepare and file a new simplified form of ‘abridged’ accounts.
Accounting thresholds for small companies are also due to rise, meaning more businesses will have access to the simplified reporting regime.
Sleigh Johnson said he was encouraged that BIS had listened to some of its key concerns, especially that access to the proposed abridged accounts regime for small companies will be restricted to companies that have secured shareholder buy-in first.
But he expressed disappointment that the introduction of the new accounting regime for small companies, especially at an EU level, “has overall been an exercise in damage limitation rather than one of well-considered, proportionate simplification, and that subsequently the time available for debate about UK implementation has been so restricted”.
Small businesses, their advisers and lenders would be well advised to prepare for implementation of the new accounting regime, irrespective of the outcome, he added.
The Financial Reporting Council is expected to consult shortly on detailed proposals for revised accounting standards for small and micro companies, also due to come into force on 1 January 2016.
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