related documents
A simplified business environment for companies in the areas of company law, accounting and auditing
ACCA welcomes the opportunity to comment on the European Commission’s proposals for simplifying the business environment in the areas of company law, accounting and auditing. A copy of our full response in PDF format is available in the "Related documents" section.
Executive Summary
As accountants, we understand that all commercial businesses wish to reduce their costs wherever they can. We understand also that it is good regulatory practice on the part of governments to impose compliance requirements on businesses only where there is a clear public interest rationale for doing so. We therefore support the Commission’s efforts to identify suitable opportunities for simplifying legislation and for reducing or abolishing ‘administrative burdens’. But consideration of the various options for reform must involve a careful and thorough assessment of all associated costs and benefits, so as to ensure that before existing rules are repealed, all relevant factors and implications have been taken into account.
We believe that the pursuit of simplification of EU legislation needs to focus, primarily, on problems which are capable of being resolved at the EU level. Many of the concerns and complaints about red tape which emanate from EU businesses relate, however, to national administrative practices, and are not necessarily the result of the requirements of EU legislation. Accordingly, responses to domestic administrative problems are best made at the national level.
Proposals for simplifying the law on company law and accounting need to acknowledge that any real reduction of business burdens will not be achieved unless regulatory requirements are reduced in a co-ordinated fashion, both at EU and national level. Meaningful reform in the name of reducing administrative burdens should also focus on those areas which appear to be of most actual concern to SMEs, e.g. employment law, health and safety and product certification rules.
With regard to the proposals on company law, we do not believe that it would be appropriate to repeal the ‘domestic-facing’ Directives in their entirety, since the harmonisation of fundamental rules still provides useful safeguards for stakeholders within the internal market. But we agree that the Commission has come up with a number of useful proposals for reducing superfluous company law requirements.
On the proposals for reforms to the rules on accounting, we agree that a number of individual disclosure requirements in the Fourth Directive could be repealed. We also support the proposal to allow companies to comply with a ‘lower’ category of accounting rules in the first year in which they meet the size criteria for that category. But overall, the proposals in this area fail to take sufficient account of the corresponding benefits which the preparation and publication of accounting information provide both to companies themselves and to their various stakeholders. The adoption of limited liability status by individual companies must be counterbalanced by a proportionate requirement for public accountability and transparency on the part of the companies concerned, and the current regime provides a modest but valuable degree of confidence to employees, shareholders, creditors and prospective suppliers that a company is operating in accordance with known rules. There is evidence to suggest that business confidence generally would suffer if companies were able to operate without this element of accountability.
Some of the proposals on accounting, in particular the proposal to remove the requirement for companies to publish their annual accounts, would not actually reduce business costs at all. The proposal to allow member states to free ‘micro’ companies from any requirement to comply with the Fourth Directive would only result in cost savings for those businesses if, firstly, they were not subjected to any alternative statutory accounting requirements at all, and, secondly, if they would not thereafter expect to produce accounting information for any other purpose, whether voluntarily or in order to comply with the demands of the tax authorities or lenders of finance. On the first of these points, we believe it highly unlikely that member state governments will choose to allow micro companies – which make up 91% of EU companies and employ a third of the EU workforce – to operate without any statutory accounting controls. On the second point, companies will, invariably, still be required to prepare credible, statutory standard accounting information for the tax authorities and providers of loans and grants. Given these ‘Business as Usual’ costs, the Commission’s proposals would not result in material deregulatory benefits.
We consider that there are alternative options the Commission should consider to improve the position of SMEs. First, the Commission and member states should take action to ensure that companies are required to produce only a single set of annual accounts and are subjected to a single filing requirement: when they publish accounts for one governmental purpose this should satisfy all other official regulatory purposes. Second, as an alternative to requiring compliance with the Fourth Directive, the Commission should consider allowing small and medium-sized companies to follow the rules of the future IFRS for SMEs – this option will of course be dependent on an acceptable standard being agreed and published. Third, the Commission and member states should do more to encourage small and micro companies to trade as unincorporated entities – operating in this way would remove the need for them to be subject to company law rules altogether. Key to this should be to make the decision as to whether to incorporate or not ‘tax neutral’, and all tax disincentives to disincorporation should be removed.
It should be borne in mind that, as well as being the main source of business advice and support for SMEs, accountants are now a key element in the EU’s framework of controls to protect the financial system against crime. Given the elaborate steps that have been taken in recent years to involve external accountants, auditors and tax advisers in this framework, it would be a retrograde step if, by freeing companies from the modest level of accounting regulation which currently applies, new opportunities were provided for SMEs to be used for the purposes of fraud and money laundering.