The proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business relevant, first-choice qualifications to people around the world who seek a rewarding career in accountancy, finance and management.

We have 71,000 members across Europe. Globally, we support our 122,000 members and 325,000 students throughout their careers, providing services through a network of 80 offices and centres around the world.

59% of our members work in or for a small and mediums-sized enterprises (SMEs) and we have over 100 years’ experience in understanding and supporting SMEs.

According to a study  by the IAB (the Belgian Accountants Association) and supported by UEAPME - thevoice of the Small businesses in Europe – 83% of small businesses believe that accountants are a small business’ first choice adviser, providing a trusted source of support and advice.

ACCA organises leading SME events across the Globe working with key local stakeholders, other international bodies and national Governments, and given that 72, 000 of ACCA’s members work in SMEs or small partnerships and many others advise their small business clients on a daily basis, we are well placed to comment on issues affecting SMEs.
 

Summary of key points

•    Exempting micro-entities from the scope of the 4th Company Law Directive would not achieve the stated aim of reducing the administrative burden on SMEs.

•    ACCA urges the Commission to withdraw its current proposal and to come back with a comprehensive proposal of revision of the 4th and 7th Company Law Directives in 2010.

•    ACCA welcomes the Commission's "European Economic Recovery Plan" to restore consumer and business confidence - in which the Commission pledges to reduce the burden on small and medium sized enterprises (SMEs) - and supporting initiatives to simplify company law but believes that the current Commission Proposal, aiming to offer Member State an option to create a new "micro" entity category in order to exempt them from the accounting requirements under the 4th Company law Directive, precisely fails to address these two issues.

•    Exempting micro-entities from the scope of the Fourth Directive would risk having an adverse effect on the quality, reliability, availability and comparability of financial information; it could even lead to the fragmentation of the single market caused by the uneven application of the proposed option to exempt micro-entities left to Members states’ choice. According to EFAA, the European Federation of Accountants and Auditors for SMEs:

“…this proposal is a step backwards from harmonisation of accounting rules in Europe and further complicates the business environment. Exempting more than 90% of enterprises defeats transparency”.

•    It is crucial to conduct empirical research on the way small businesses work and processes they find vital (e.g. keeping an order book; managing cash flow) before premature decisions are made on the basis of prejudice and assumption. This need is now even more keenly felt in the current economic climate where prolonged recession is a distinct possibility.

•    As repeatedly highlighted by many member states and UEAPME, all businesses, in order to manage and plan their affairs properly, need to put in place effective internal controls and to summarise their financial position in the form of annual financial statements. ACCA stresses, however, that, whatever company law might say on this matter, companies will continue to need to prepare accounts for tax purposes and to meet the requirements of lenders of finance. We also believe that the potential savings achieved as a result of dispensing with the current requirement for accounts to be published would be nominal as filing costs are minimal and account-production is the end of a long and necessary bookkeeping process. In addition, suppliers to small companies, which are themselves often SMEs, as well as lenders and investors, have come to rely on the availability of filed accounts to check creditworthiness and solvency.

•    Abolishing the requirement to file accounts on the public record would represent an unprecedented removal of financial information from the public domain that would increase asymmetry of information between large trading member states and smaller neighbours, leading to distortion of competition between countries for no noticeable gain.

Context

On September 19th 2008, the Commissioner for the Internal Market and Services, Charlie McCreevy, announced initiatives aimed at simplifying the accounting requirements for small businesses contained in European law. In this statement he:

•    Announced the possibility of a Member State option to exempt micro entities from the need to file accounts

•    Called on Member States to participate in a critical review of the accounting directives for SMEs to help reduce the administrative burden placed upon them

In July 2008, the High Level Group of Independent Stakeholders on Administrative Burdens, headed by Edmund Stoiber, presented a report to the Commission on burden reduction for companies, which was not unanimously supported - for example, by the representative of SMEs and the sector. The report claimed that there would be an immediate saving of €5.7 billion if small businesses were exempted from the accounting framework and not required to prepare annual accounts. The Commission aims, through this measure, to contribute to the reduction of the administrative burden on SMEs’ by 25%. 

Proposals were consequently put forward to Mr McCreevy in July to exempt “micro entities” from the current accounting rules. On 26 February 2009, the Commission published its proposal to amend the Fourth Directive so as to allow member states to exempt micro companies from the current standard requirements of that Directive. The Commission subsequently announced that, before proceeding further with its planned wider review of the accounting Directives, it would take time to digest the implications of the document IFRS for SMEs, published in July 2009.  

However, ACCA believes, and the ECON Committee has concurred, in the Opinion it produced on this issue, that potential savings achieved by the Commission’s proposal would be nominal or none at all. At the same time there would be a reduction in the amount of information made available by the smallest companies to their shareholders and other stakeholders and a reduction in potentially useful information for regulators. The cost of filing accounts is minimal and accounts production is the end of a long and necessary bookkeeping process. In addition, suppliers to small companies, which are themselves often SMEs, as well as lenders and investors, often rely on the availability of filed accounts to check creditworthiness and solvency.

Exempting micro-entities from the need to prepare and file annual accounts would not achieve the stated aim of reducing the administrative burden on SMEs

Our position

Limited liability represents a social contract, and filing of accounts is one critical responsibility in the fulfilment of that contract. ACCA and UEAPME both share the concerns expressed by the ECON Committee of the European Parliament, which recently endorsed MEP Stercks’ (ALDE/BE) opinion on the proposal, that the accompanying impact assessment amplifies the advantages and fails to quantify and consequently under-estimates the disadvantages of exempting micro-entities from accounting requirements.

Only relevant, light touch regulation will bring benefits, what we need before that is a more rigorous, transparent cost-benefit assessment capable of independent evaluation.

ACCA therefore produced a template for what a thorough impact assessment into this issue should entail. Impact assessments need to be comprehensive in order to be effective, and we support the measure calling on the Commission to do a full presentation to the ECON Committee as a measure to avoid unsatisfactory regulation. The regulatory reform agenda is an area in which ACCA has built considerable expertise.

Now more than ever, we cannot afford to discourage people from starting businesses, from innovating, and especially from taking on new staff. Yet that is the impact of poorly designed / implemented regulation.

The reduction of administrative burdens for SMEs must be realised in a coherent and comprehensive manner, which is why ACCA urges the Commission to withdraw its current proposal and to come back with a comprehensive proposal of revision of the 4th and 7th Company Law Directives in 2010.