IAS accounting: Administrative burden or opportunity?

Small businesses are unimpressed by a new European Union regulation on the harmonisation of accountancy standards, touted as a means of improving SMEs' access to international capital markets.

The regulation, which EU finance ministers are expected to rubber-stamp on February 9, requires all listed European companies to use common accounting standard from 2005. There is a strong chance that it will later be extended to all other companies as well.

All companies subject to the regulation will be required to prepare consolidated accounts in accordance with International Accountancy Standards (IAS). Within 2 years, of the all companies preparing for a stock marke flotation within the EU will also be legally obliged to prepare accounts to IAS standards.

For now, however, unlisted companies are free to prepare accounts to national standards, and small business groups in the UK want it to stay tha way.

Tom Preece, of the Federation of Small Businesses' Policy Unit says: We would object strongly to any accounting or tax harmonisation within Europe. We are opposed to the EU imposing any new formats, the reason being that it would be too complicated. Currently in the UK we have four business entities whereas in France there are nine. To take this all into account would add a huge burden, just at a time when the DTI is trying to cut down on the administrative load of SMEs.

However, the EU authorities believe that the changes will make i easier for European companies raising capital outside the EU to comply with the financial reporting requirements of international capital markets, and thus compete on equal terms with firms from outstide Europe.

Financial reporting was recognised as a key element of capital marke efficiency when the European Commission, the EU executive, was first drawing up the proposal. The Commission has said that an essential requirement is that the accounting standards chosen in the run-up to 2005 must meet investors' needs and be compatible with global developments. IAS standards meet both of these criteria, the institution argues.

An IASC spokesperson comments: (IASC standards) are comparable to UK accounting standards, although probably more complex on the whole. But we hope that they are more modern and high quality. They could be adopted by small businesses with aspirations for raising money in foreign capital markets. It is not that onerous a move for those interested.

The EU has a large SME community, and although smaller firms are no normally required to use IAS', some are becoming more interested in doing so in order to compare their performance with larger businesses. Others aim to to share in the overall efficiency gains that will result from having a single se of accounting standards in use throughout the world.

Even so, Preece of the FSB argues plays down the benefits: Harmonising standards within the commonwealth would be easier than with the EU. At the moment Greece and Scandinavia have such completely differen procedures that it would be impossible to do.

He also makes the point that it is unnecessary: Currently whenever a small business applies for funding from a lending institution or an investment bank, it will do its own investigation into the company's accounts, so IAS' don't really apply.

Only this week the International Accounting Standards Committee announced the names of the 13 accounting experts who will make up its new standard-setting board under the chairmanship of David Tweedie.

Tweedie and his board are now tasked with making the new IASC a success: What we're aiming at is one set of global standards, and tha doesn't mean the lowest common denominator, he told the Times newspaper.

The Committee now plans to open discussions with IOSCO, the stock market regulator's club. In May last year, it endorsed the IASC's core set of standards but said some of these were not satisfactory.

Over the long term, the Committee aims to achieve convergence of the world's accounting principles by working closely with national standard-setters. Tweedie has stressed that cooperation from national standard-setters will be the key to the new IASC's success.

He also plans to propose a set of second-tier standards for smaller companies not seeking international listings.