The European Commission to simplify the business environment... (2/3)
This blog follows on from my last post.
As companies move between SME accounting thresholds, the reporting structure and contents of financial statements changes.
Currently a small company that grows into a medium sized company will need to exceed the small company threshold for 2 consecutive years before it loses its small company exemptions. The same applies for a company diminishing in size.
A recent EU commission consultation paper is proposing that the limit is raised to 5 year for companies that are exceeding the threshold (ie for 5 years after becoming a medium sized entity a company can continue to utilise small companies exemption) and 1 year for a medium entity declining into a smaller entity.
These proposals will excite financial controllers and directors of smaller companies, who will anticipate keeping relatively simple accounts, with little disclosure, and lower compliance costs.
However the sword is double-edged. Investors and other financial institutions may not favour the change, which dilutes the market information (hence competitiveness) and dampens the scope for medium entity corporate transactions. Also there will be significant effect on other stakeholders, such as suppliers who often rely on financial information to assess customer credit worthiness.
This news will excite many, but the economic effect may well be harder to quantify.
For further details on this EU documentation follow the link below
European Commission:
http://ec.europa.eu/internal_market/company/simplification/index_en.htm
As companies move between SME accounting thresholds, the reporting structure and contents of financial statements changes.
Currently a small company that grows into a medium sized company will need to exceed the small company threshold for 2 consecutive years before it loses its small company exemptions. The same applies for a company diminishing in size.
A recent EU commission consultation paper is proposing that the limit is raised to 5 year for companies that are exceeding the threshold (ie for 5 years after becoming a medium sized entity a company can continue to utilise small companies exemption) and 1 year for a medium entity declining into a smaller entity.
These proposals will excite financial controllers and directors of smaller companies, who will anticipate keeping relatively simple accounts, with little disclosure, and lower compliance costs.
However the sword is double-edged. Investors and other financial institutions may not favour the change, which dilutes the market information (hence competitiveness) and dampens the scope for medium entity corporate transactions. Also there will be significant effect on other stakeholders, such as suppliers who often rely on financial information to assess customer credit worthiness.
This news will excite many, but the economic effect may well be harder to quantify.
For further details on this EU documentation follow the link below
European Commission:
http://ec.europa.eu/internal_market/company/simplification/index_en.htm
