Relieving micro-entities from financial
reporting obligations will not reduce costs, will decrease
transparency and work against the EU single market, according to
European SME association UEAPME.

UEAPME has 83 member organisations covering
more than 12 million enterprises with 55 million employees. These
are the stakeholders the EC proposal to exempt micro-entities from
the Fourth Council Directive is intended to benefit.

The proposal would remove statutory financial
reporting for micros. It represents a significant contribution to
the EC’s plan to reduce administrative costs for businesses in the
EU by 25 percent by 2012.

But the anticipated cost reduction has been
met with scepticism by UEAPME and the Federation of European
Accountants (Fédération des Experts Comptables Européens –
FEE).

FEE chief executive Olivier Boutellis-Taft
told The Accountant the cost of preparing accounts could
even increase.

“Costs will be replaced at national level,
they will be replaced by tax requirements. They might even increase
as in a number of member states a swathe of statistical information
will disappear and that will have to be replaced,” Boutellis-Taft
said.

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“Instead of filing multipurpose financial
statements, micros will have to respond to surveys, requests for
information and so on. There will be no harmonised, modernised,
simplified but consistent multipurpose financial statement
framework.”

The UEAPME also argued the proposal would
create an uneven playing field between businesses operating in
different EU member states, as only some will use the
exemption.

The UEAPME, FEE and the Institute of Chartered
Accountants in England Wales (ICAEW) all agree financial reporting
for micro-entities needs to be revisited.

The UEAPME suggested the EC should simplify
the existing harmonised accounting rules and apply them to all
businesses.

ICAEW head of financial reporting Nigel
Sleigh-Johnson told The Accountant this is an opportunity
for a long overdue debate on the right form of reporting for very
small companies. He warned it is important not to overlook the
benefits of financial reporting in the small business sector.

“Public authorities require a certain amount
of credible financial information from this sector,” Sleigh-Johnson
said. “Although they are small entities individually, collectively
they are quite a sizable part of the economy, so there is a need
for monitoring and for obtaining the right regulatory
information.

“There may be opportunities for money
laundering or tax evasion if there isn’t the right reporting
framework from that sector as well as every other sector of the
economy.

“And there are other users of the accounts of
micro entities – credit rating agencies and so on access
information at Companies House. It is not well understood what use
those filed accounts are put to and I think that is one of the
things that needs to be explored as part of this debate.”

The European Federation of Accountants and
Auditors for small- and medium-sized enterprises (EFAA), which
represents more than 200,000 accountants and auditors, also
criticised the EC proposal, saying it defeats transparency and
harmonisation goals.

EC Internal Market and Services Commissioner
Charlie McCreevy said the commission intends to do whatever it can
to encourage maximum take up of this exemption by member states.
The EC also plans to consult on the remaining accounting rules in
the Fourth and Seventh Council Directives to seek further areas for
simplification.

The proposal will now be passed to the
European Parliament and member states to debate.

PROPOSED AMENDMENT

Counting the
costs

Who does it apply
to?

Entities that meet two of three
criteria:

• balance sheet total of no more
than €500,000 ($633,430)

• net turnover of no more than €1
million

• an average of no more than 10
employees in the financial year

How much will it
save?

• Up to €1,200 a year for each
entity

• As much as €6.3 billion per year
in total

Source: European Commission