The Institute of Chartered Accountants in Scotland (ICAS) has warned that UK Government plans to introduce of cash-based accounting for unincorporated businesses is misguided and may increase the likelihood of smaller businesses ending up in unexpected financial difficulties.

ICAS’s comments come on the back of the Governments Autumn statement issued today, which confirmed the new cash basis for unincorporated businesses with receipts of up to £77,000 from April 2013.

ICAS director of technical policy James Barbour said it may lead to businesses not "properly knowing their true financial position".

"Focussing on cash may lead to less consideration being given to outstanding debts of the business and provide the owner with a false sense of security. Businesses need to understand their true financial position and only accounts prepared on an accruals basis satisfy that need"

The potential benefits of simplification are likely to be outweighed by the potential risks involved. Although cash-based accounting may seem an appealing prospect, small businesses should be wary of the potential consequences of using it.

It may also hinder their ability to obtain finance and therefore hinder their ability to grow, Barbour said.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Related link
Institute of Chartered Accountants in Scotland