Monday, March 07, 2011

UK Minister Supports Proportionate Audit and Reporting Standards for Smaller Companies

As part of an overall drive to reduce regulatory burdens for small companies, the UK Secretary of State for Business, Vince Cable, said that the government intends to change the law to simplify the audit rules for small and medium-sized companies (SMEs) and the subsidiaries of larger companies, thereby saving UK companies up to tens of millions in unnecessary audit fees. In recent remarks, the Minister also said that, while the UK gains a real advantage from upholding high standards in audit and accounting, small company audit rules are stricter in the UK than in almost everywhere else in the developed world.

Noting that smaller companies should also benefit from less complex accounting and financial reporting requirements, the Minister also supports proposals by the Accounting Standards Board to modify the reporting requirements for 35,000 small and medium- sized companies. The Board’s proposals envision a differential reporting regime based on public accountability broadly in line with the IASB’s definition in the IFRS for SMEs, which states that entities do have public accountability if they trade their debt or equity instruments in a public market or hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses.

The Board proposes a three-tier approach under which larger companies in Tier 1 would use IFRS as adopted by the EU (EU-adopted IFRS) and smaller and medium-sized companies would have the option of using EU-adopted IFRS if they wished or using the IFRS for SMEs. The publication by the IASB of its IFRS for SMEs provided the Board with the opportunity to consult on what the Board envisions as the future framework for financial reporting by UK and Irish companies.

Echoing the Minister’s comments, the Board recognized the increasing burden on companies with regard to financial reporting and accounting requirements and was careful to frame its proposals within the context of the principles of better regulation, which require regulations to be proportionate, accountable, consistent, transparent and targeted. Consistent with the principles, the Board is advancing proportionate reporting and accounting requirements based on the nature of a company’s accountability obligations and its size.