By Max Clarke
The preparation of accounts and the independent audit of that information bring value to businesses large and small, says ACCA (the Association of Chartered Certified Accountants) in response to the Government’s announcement that “no small firm will have to have independently audited accounts any longer.”
ACCA is concerned that the Department of Business of Innovation and Skills (BIS), in a news release issued on Friday 4 March, referred to annual accounts as 'paperwork' and the current obligation of companies to prepare them as 'burdensome'.
John Davies, head of technical at ACCA, says: “Annual accounts are prepared and published as a quid pro quo for the privilege of adopting limited liability status, a status which the UK's nearly two million small companies freely choose to take on.
“These accounts provide basic information about the financial health of companies to their shareholders and to any party who is contemplating doing business with them or lending money to them, while also serving as the basis for determination of their tax liability. Where accounts are audited - currently this is optional for small companies - that process is widely seen as adding credibility to the information contained in those accounts.”
Mr Davies adds: “Any business, whether incorporated or not, needs to maintain a basic standard of financial management otherwise it risks going out of business and its shareholders and customers risk losing their money. It is worth pointing out in this connection that HM Revenue & Customs (HMRC) has decided to undertake a new campaign of carrying out spot checks on small firms’ business records from next year: this underlines the importance that the tax authorities are placing on proper financial management.”
On the specific undertakings given by BIS, ACCA says there may be scope for relaxing some of the current rules relating to the audit of subsidiaries. But the sweeping reforms proposed for micro company accounting, and the promised exemption from audit for medium-sized companies, are both dependent on changes first being made to EU law. The recent motion passed by the European Parliament to allow member states to exempt micro companies from the current EU accounting rules shows no sign of becoming law given the strong opposition from a number of member states, while the proposal to exempt medium-sized companies from audit has yet to be seriously debated at the European level.
“We fully support the Government's goals of encouraging entrepreneurship and achieving business growth,” concludes John Davies. “But sound financial planning and accounting actively help to make those things happen, for example by making a business more credible to lenders of finance and prospective business partners and customers. We should not give the impression that new and existing businesses will be helped to prosper by viewing accounting and sound financial management as mere bureaucracy.”