RegulationAccounting StandardsOne size does not fit all

One size does not fit all

Small listed companies should be freed from some of the regulatory reporting burdens

Smaller quoted companies (SQCs), both fully listed and members of the AIM
market, have a key role to play in helping the economy emerge successfully from
recession. They generate significant employment and, over time, some will grow
into much larger FTSE 350 companies, while many others will make a sustained
contribution as solid mid-caps.

We are beyond the era of light-touch regulation, nevertheless, but when
considering SQCs rules have to be proportionate and tailored if we are to strike
the right balance between risk management and promoting entrepreneurship.

In reporting, as other areas, we need to challenge the one-size-fits-all
approach. The same requirements should not automatically apply to SQCs, with a
market capitalisation often well under £100m, as to leading global players with
a value hundreds of times greater.

At the Quoted Companies Alliance, which represents SQCs, we are committed to
fostering a culture of continuous improvement in corporate reporting. We
therefore welcome the feedback provided by the Financial Reporting Council
(FRC), and its constituent bodies, on the quality of financial statements and
business reviews. We are also very supportive of the FRC’s efforts to reduce
complexity in reporting, but believe that, if this project is to make a real
difference, it has to have the support of the International Accounting Standards
Board.

Two specific changes could significantly reduce SQCs’ reporting burden.
Firstly, we need a clearer shared view by finance directors, auditors and
regulators of when materiality can be applied to take away the need to implement
particular requirements in standards. Standard-setters tend to cite materiality
to explain why SQCs do not need to be overly concerned by potentially onerous
new requirements.

Preparers, however, bemoan the fact that it is hard to rely on materiality in
practice as the auditors worry that the regulators will not be supportive of
judgements made in this regard. We need to get all the players around the table
to move the debate forward.
Secondly, SQCs should have the choice to use the much simpler IFRS for SMEs when
preparing their financial statements as an alternative to adopting full IFRS,
which now runs to more than 2,500 pages of guidance.

We recognise that this would require a change in the relevant EU regulation
for fully listed companies and in the requirements of the London Stock Exchange
and company law in the case of AIM companies. Pleasingly, though, support is not
restricted to the UK for a reconsideration of the one-size-fits-all approach to
listed company reporting.

Going forward, standard-setters must apply robust cost benefit tests to new
requirements and gain a good understanding of the information investors actually
use. We need to distinguish the ‘might be nice to have’ from that which is
important for stewardship and other decision-making purposes.

Critically, cost benefit assessments should recognise the importance of not
discouraging fast-growing private companies from seeking a market listing as a
means of providing external capital to support their continued expansion. We
must help acorns grow into oak trees.

Anthony Carey is chairman of the Quoted Companies Alliance Financial
Reporting Committee and a partner in Mazars LLP.

Related Articles

Demystifying GDPR for accountants

Accounting Standards Demystifying GDPR for accountants

2w Ellen Temperton, Lewis Silkin
EY fined £1.8m over Tech Data audit

Accounting Standards EY fined £1.8m over Tech Data audit

2m Emma Smith, Managing Editor
The great professional services shake-up

Accounting Standards The great professional services shake-up

3m Fergus Payne, Lewis Silkin
What do clients actually want from an accountant?

Accounting Standards What do clients actually want from an accountant?

4m Emma Smith, Managing Editor
Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

Accounting Standards Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

5m Alison Conley
Membership of the accountancy profession on the rise

Accounting Standards Membership of the accountancy profession on the rise

5m Alia Shoaib, Reporter
The real price of mates' rates in the provision of professional services

Accounting Standards The real price of mates' rates in the provision of professional services

5m DAC Beachcroft
IASB overhauls insurance accounting with issuance of IFRS 17

Accounting Standards IASB overhauls insurance accounting with issuance of IFRS 17

7m Alia Shoaib, Reporter