Small firms play a big part in accounting drama

Growth companies could soon have their own standards for reporting, says Roger Trapp
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Once derided as tiddlers of little interest, Britain's smaller companies suddenly seem to be attracting attention from just about every quarter. If it is not the Chancellor delivering Budget concessions in the quest for the creation of an "enterprise culture" or large firms of accountants worrying about the effects of self-assessment of taxation, then it is all and sundry seeking ways of reducing the regulatory burden.

Just before Christmas, a working party of the Consultative Committee of Accountancy Bodies proposed that all existing accounting standards should cease to apply to small companies. Instead, there should be a single accounting standard - a Financial Reporting Standard for Smaller Enterprises (FRSSE) - for organisations with turnover of less than pounds 2.8m.

Gerry Acher, chairman of the audit faculty at the Institute of Chartered Accountants, hailed the so-called Big Gaap/Little Gaap proposals (Gaap standing for generally accepted accounting practice) as charting "a sensible course under which progress can be made without compromising fundamental principles".

However, the Foundation for Manufacturing and Industry, a non-political business think-tank, wants to go further. Describing the CCAB idea as a "cut-down version of existing standards", it suggests:

n Making the profit and loss account the heart of owner-managed company reporting;

n Drawing this up in line with tax-measurement rules and seeking to give additional management information;

n Providing simple cash-flow information;

n Paying special attention toshareholders not involved in management by giving them the same detailed analysis of costs, and giving them a management report that would include details of the remuneration of main board directors, unfunded pension liabilities and leasing commitments.

Professor Peter Walton of Geneva University, a member of the CCAB working party who drew up the report with David Harvey, secretary of the Institute for Smaller Business Affairs, said the CCAB had taken the view that "it was better to try for a 'saleable' standard and establish the principle of differential reporting, than to fail completely through trying to change measurement rules. It is too early to say whether this view has been justified."

The report points out that different reporting procedures for large and small firms exist in most OECD countries.

In France, for instance, differential reporting is well-established, and both Australia and New Zealand have introduced differential reporting. In the US the rules of the Financial Accounting Standards Board automatically apply to only the approximately 10,000 larger companies registered with the Securities and Exchange Commission. Unless lenders object, smaller companies can use tax-based principles.

The report says that, while differential reporting is espoused by some standard setters, academics and accountants, it is viewed with suspicion by traditionalists. But it suggests that there has been "a shift in the balance of feeling about differential reporting".

The captains of small business will be hoping that this hardens into real change.

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