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June 20, 2016

Concerns raised over lack of a harmonised European accounting framework for SMEs

By Vincent Huck

Implementation of the European Union (EU) Accounting Directive has created a fragmented accounting for SMEs landscape across Europe, a survey by the European Federation of Accountants and Auditors for SMEs (EFAA) has found.

The Accounting Directive was published on 26 June 2013, entered into force on 20 July 2013 and should have taken effect in member states on 20 July 2015. In implementing the directive, member states had some 100 options to choose from. EFAA conducted a survey of its members in eight EU member states to provide insight into the likely effect of the implementation and how the directive was implemented.

The findings of the survey were released in a report launched at a roundtable event held in Brussels in partnership with ACCA.

The EFAA report showed that in some areas most of the surveyed countries have implemented the directive in a similar way especially in estabilishing a reduced disclosure regime for micro entities.

However the overall picture suggests a considerable discrepancy in the use of the member state options across the different countries and a reduced transparency of SMEs because of the decline in financial information available about them in the public domain.

Bodo Richardt, EFAA president said "Harmonisation is not only needed by the global payers, but also by smaller entities, especially those investing or operating across borders and located in border regions. The deficiencies in both harmonisation and comparability that the EFAA survey illustrates seem likely to provide impediments to SME development."

"Common standards are essential. Comparability is very important, both for the completion of the Capital Markets Union programme, envisaging a comparable financial reporting system for SMEs on alternative markets and also as a common information base for credit applications, and for consumer protection purposes," Richardt added.

Marie Lang, co-author of the report, and director of professional development at EFAA said: "The debate revealed that accounting by SMEs across Europe is going to be little harmonised, and that the initial aim of the Directive was unlikely to have been met. There is no escape from the fact that users looking at the accounts of companies across Europe will have to exercise considerable care in reading, interpreting and comparing the information they contain."

Richard Martin, co-author of the report, chair of the EFAA accounting expert group and head of corporate reporting at ACCA explained: "It should not be forgotten that the Directive is silent on many accounting treatments such as for example on leases, deferred tax and pension obligations. This means that there will be further differences and lack of harmonisation".

"Also, in the framework of EU action against tax avoidance, which is very high on the agenda, both internationally and at EU level, the forthcoming Common Consolidated Corporate Tax Base proposal may be an important component. Any common corporate tax base to help with tax avoidance or the debt/equity bias would have to start with a common accounting basis," Martin concluded.

EFAA’s report can be accessed here: The New Accounting Directive: A Harmonised European Accounting Framework?

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