Why EU directive on accounts could make us pay in long-term
Readers would not be impressed by special pleading from the accountancy profession in defence of the requirement for small companies to file accounts.
That’s why I hesitate to raise the question of a planned EU directive aimed at cutting red tape which would exempt “micro-entities” – companies with fewer than ten employees – from the obligation to file accounts with Companies House.
This may save British businesses about £300 million a year, useful in the current economic climate, although accounts would still need to be prepared for tax purposes.
The inevitable response to a chartered accountant who argued against this EU proposal would be rather like Mandy Rice-Davis’s response in court during the Profumo Affair: “Well he would say that, wouldn’t he?”
Even so, this is not an entirely self-interested concern. Admittedly, the EU exemption, if it applied in this country, might reduce the work of High Street accountancy firms in preparing financial statements for filing.
But the need to prepare accounts is not a job-creation programme for chartered accountants. It is an essential discipline for small businesses which, if it were to be lost, would inevitably lead to even more company failures than we see at the moment.
A survey by the Institute of Chartered Accountants in the West Midlands found that, by a long way, the biggest single cause of small and medium sized businesses failures was the inability of the owners and directors to have a clear understanding of their finances.
Without the requirement for annual accounts, the number of small companies with only the sketchiest idea of their finances will rise significantly.
And why does this matter? It means the difference between profit and loss, growth and bankruptcy. Moreover, if a company does not have adequate accounts, it has far less chance of obtaining bank support, other investment or sale as an on-going concern.
Companies can’t survive without regular and accurate accounts. Yet smaller businesses, which are the mainstay of the economy, often get themselves into trouble ignoring this most basic aspect of their work.
The EU’s proposals may well cut the burden on small businesses. But the price in the long run could be far greater than any apparent short-term saving.
As president of the Birmingham and West Midlands Society of Chartered Accountants, I clearly have an interest in promoting the work of our members.
But the Institute’s first duty, expressed in its charter, is to work in the public interest.
This is not a question of “protectionism” for accountants. Without access to adequate accounts, it is difficult to see how companies can do business with each other with any confidence.
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