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September 14, 2007

EUROPEAN SMESMP CONGRESS: FEE shifts focus to smaller entities

EUROPEAN SME/SMP CONGRESS: FEE shifts focus to smaller entities

The importance of effective and reasonable regulation for smaller organisations was one of the cornerstones of discussion at the third annual European SME/SMP Congress in the Netherlands this month. Carolyn Canham reports

The European Federation of Accountants (Fédération des Experts Comptables Européens – FEE) is to focus more attention on SMEs. FEE president Jacques Potevin revealed a shift in strategy at the Third FEE Annual European SME/SMP (small- to medium-sized practices) Congress held in The Hague, the Netherlands, recently. In his opening speech he said most of FEE’s focus has traditionally been on large internationals.

“Therefore it was necessary to review the scope [of the federation’s activities],” he explained. Potevin said the necessity of the review was due to the importance of SMEs to economies worldwide. He emphasised the role of SMEs on the European internal market and how the development of this market is vital to smaller entities.

Potevin said there is transparency at a national level and now it is needed at an EU and global level. “As a profession we can help SMEs by improving transparency,” he said.

Loek Hermans, chair of the business umbrella group MKB-Nederland, suggested that regulation for SMEs should be the standard, rather than the exception. The former government minister said transparency is needed, especially when the public’s money is invested, however, transparency for smaller entities “should be simpler”. “Introduction of IFRS for SMEs is over the top,” he said at the conference. “The 5 percent of larger companies should be the exception.”

Hermans said, at present, the largest 5 percent of companies cause 90 percent of regulation. “Government needs to make SMEs the standard for rules. The exceptions should be multinationals,” Hermans explained, adding that governments need to beware of bringing the problems of the big internationals “flowing into Europe”.

The EC Director of Free Movement of Capital, Company Law and Corporate Governance, Pierre Delsaux, said the commission does not intend to enforce IFRS for SMEs. “It is limited to listed companies and we do not intend to change,” he said. “If, by chance the [International Accounting Standards Board (IASB)] develops a standard that is so well liked by all of you, we won’t stop you adopting it.” Delsaux explained that IFRS for SMEs is not part of the European legal system and it is up to individual countries to decide whether to adopt the standards.

SEC recognition of European IFRS Delsaux also expressed concern about the US Securities and Exchange Commission’s (SEC) recommendation to allow preparers of financial statements in the US to use IFRS as adopted by the IASB. Delsaux suggests this could exclude financial statements prepared under IFRS as adopted by Europe, which has some variances to the IASB version. He said the commission is currently speaking with the SEC about accepting the European version of the standards.

“It is important for our firms to operate in the US and on a global level,” he explained.

Contrary to the reservations some industry figures held regarding IFRS for SMEs, there was widespread support during the congress for the simplified standards. Angela van Os, financial manager for Dutch flower company Anthura, spoke about how the increasingly international nature of SME transactions made it highly desirable to have a set of suitable international standards.

Support for IFRS for SMEs Deloitte Netherlands chief executive Roger Dassen also supported the standards. “I do believe that having, even for SMEs, a common sets of standards makes an awful lot of sense, because even SMEs are getting more and more international than they were in the past,” Dassen told TA. “But it should be a set of standards that really can be handled by SMEs and I think IFRS as it currently stands might be a handful.”

Dassen expressed sympathy for the IASB’s task of modifying IFRS to suit smaller entities, likening it to asking an artist to cut away 50 percent of a painting.

“I can see that for the standard setter that came up with the original standards, it’s pretty difficult to do that,” he said.

The main theme of Dassen’s presentation at the FEE conference was the future of the profession. He told the congress that there has not been enough talk on the topic in recent years.

“In the past seven years, with all the financial scandals that arose, there has been an incredible pressure on the quality, the compliance, etc, etc, for very good reasons,” Dassen said. “But I think we need to look at what business reporting will look like in the next couple of years and I am quite certain that it will not be confined to the traditional financial statements once every year that we currently have because I don’t think they serve the information needs for investors and of the public at large.

“I believe that in addition to those financial statements… we will see that non-financial measures get reported on, that companies report on the quality of their systems, that they report on their behaviour, their corporate social responsibility.”

Dassen suggested that continued focus solely on the quality of financial statements could lead to unnecessary complexity. He concluded: “If we do not think about the reporting framework in the future, the only discussion in our territory will be on reducing the administrative burden, and that’s not a great place to be in, is it?”

 

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