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Small and medium-sized enterprises (SMEs)

Accounting and SMEs

The importance of internal and external accounting as a source of information for owners and managers of small enterprises and their different stakeholders is steadily growing.
It is of crucial importance that the accounting systems applied by small enterprises meet their actual needs, providing necessary information yet avoiding unjustified administrative burden.

Study on 'Accounting guide for SMEs'

Background

In 2011 Directorate General for Enterprise and Industry published a study named 'Accounting requirements for SMEs' which comprised both the existing accounting requirements for SMEs, the users’ perceived needs for accounting information from SMEs as well as the SMEs’ own needs for accounting information in the non-financial business economy in twenty selected European countries. All legal forms and sizes of enterprises (which had not been listed nor had been large enterprises) were in the scope of the study. As a result of the study, it could be seen that the accounting requirements for those SMEs which are not regulated at EU-level are very different ranging from almost non-existent to quite rigorous requirements. In many cases Member States’ legislation is very demanding concerning accounting requirements for these SMEs which add to their regulatory burden.

Objective

The objective of the study is to present an 'Accounting guide for SMEs' which

  • Contributes to the development of good accounting practices for those European SMEs which are not covered by harmonised EU accounting rules and thereby might be subject to an unnecessary high administrative burden at a national level. 
  • Provides Member States and stakeholders with information about current good accounting practices in Europe for those European SMEs which are not covered by harmonised EU accounting rules.
  • Presents recommendations on good accounting practices in specified accounting areas for those European SMEs which are not covered by harmonised EU accounting rules in the form of an Accounting Guide and encourage Member States and other stakeholders to follow up on it. The Accounting Guide should also indicate areas within the accounting field where the administrative burden could be reduced without having a material impact on the quality of the financial information that is published by these SMEs.

Description of tasks

The study consists of three modules

1. Desk research

Identifying and analysing the accounting requirements (both legally binding and recommendations) in the specified accounting areas for those European SMEs which are not covered by harmonised EU accounting rules as in force on the signature of the service contract in the non-financial business economy for the minimum 25 countries selected. Especially good accounting practices in the specified accounting areas will be identified and well substantiated recommendations on the good accounting practices will be made based on the identified and analysed information in the Desk research.

2. Survey

Analysing and identifying the users’ and preparers’ needs in the specified accounting areas for those European SMEs which are not covered by harmonised EU accounting rules in the non-financial business economy for the minimum 25 countries selected. For this purpose a survey on good accounting practices in the specified accounting areas will be carried out among users and preparers of accounting information. Well substantiated recommendations on the good accounting practices in the specified accounting areas will be made based on the identified and analysed results of the survey at an aggregate European level.

3. Accounting Guide

Based on the results in the desk research and the survey modules, the study will identify and provide well substantiated recommendations on the good accounting practices in the specified accounting areas in sub accounting guides for those European SMEs which are not covered by harmonised EU accounting rules. Special attention will be given to recommendations that could reduce the administrative burden of SMEs for producing financial statements without having an impact on the quality of financial reporting.    A cost-benefit model will be used when providing the recommendations.

Roadmap 

Indicative TimelineMeetingsDeliverables
1st quarter 2013

Kick-off meeting with the Commission experts group

 

Draft questionnaires and work programme

 

3rd quarter 2013

First workshop with the Commission experts group

 

Material to be presented by the Contractor
4th quarter 2013Draft of the first interim report
2nd quarter 2014Second workshop with the Commission experts groupMaterial to be presented by the Contractor
3rd quarter 2014Draft of the second interim report
4th quarter 2014Draft of the final report
1st quarter 2015Seminar with the Commission experts groupPresentations by the Contractor

Study on 'Accounting requirements for SMEs'

The importance of accounting as a source of information for owners and managers of small enterprises and their different stakeholders is obvious.

In the European Union (EU), there is accounting legislation in place for different kinds of companies.
As regards listed companies in the EU, we have the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) as adopted by the EU (IAS Regulation (EC) N° 1606/ 2002 ).

Concerning limited liability companies, there are at EU level the Fourth Directive (78/660/EEC) and the Seventh Directive (83/349/EEC), together named the Accounting Directives, which are transposed by Member States into their national accounting legislation to become local GAAP (General Accepted Accounting Principles). However, there is no accounting legislation in force at EU level for those enterprises which are not covered by the IAS Regulation and the Fourth and Seventh Directives.

In 2007 the European Commission set out a vision for simplifying EU rules on company law, accounting and auditing in a Communication . In 2009 some elements of the Communication were taken forward by the Commission in a Directive amending the Accounting Directives as regards certain disclosure requirements for medium-sized companies and the obligation to draw up consolidated accounts. In 2009 the European Commission announced that micro entities would be exempted from the Accounting Directives and that in addition a modernisation and simplification of the Accounting Directives would be carried out in the near future .

In 2008 the Directorate General for Enterprise and Industry in the European Commission published an expert group report on "Accounting systems for small enterprises - recommendations and good practices" . This report describes e.g. the accounting systems and accounting framework in place for small enterprises not regulated at EU-level and identifies some good practices for these enterprises. On this account, there was obviously a need to find out more about the accounting requirements for SMEs in Europe in the future.

The project

The overall aim of the Study was to produce a report which comprises both the existing accounting requirements for SME's, the users' perceived needs for accounting information from SME's in Europe as well as the SME's' own needs for accounting information in the non-financial business economy.

The final result of the Study was concrete proposals on possible future accounting requirements for SMEs in the non-financial business economy.

The tasks were to provide an overview of existing accounting requirements and the perceived needs for accounting information from SMEs in Europe in the non-financial business economy from both the users' and preparers' point of view.
For this purpose a Study was carried out in 20 (1) countries selected among Member States and EEA countries to be representative for all these countries. The Study consists of three modules:

  1. Desk research:
    Factual information on accounting requirements for SMEs as in force in November 2009 for the 20 countries in the non-financial business economy was identified and analized. Especially good accounting practices were identified, recommendations were made and conclusions were drawn based on the identified and analysed information in the desk research. Also some statistical data on SMEs were collected and presented;
  2. Survey:
    The users' perceived needs for accounting information from SMEs in Europe as well as the SMEs' own needs for accounting information in the non-financial business economy for 19 countries were analized and identified. For this purpose the Survey was carried out through 1 560 interviews among users, preparers and accounting professionals in 19 countries. Recommendations on perceived accounting requirements were made and conclusions were drawn based on the analysed results of the Survey; and
  3. Future policy initiatives:
    Based on the results in the desk research and the Survey modules, possible future policy initiatives for accounting requirements for SMEs in the non-financial business economy were identified. This task has to be seen in the light of the European Commission's work to exempt micro entities from the Accounting Directives and the revision of the Accounting Directives .

(1)Austria, Belgium, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Italy, Lithuania, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

The Final Report

Study on Accounting requirements for SMEs pdf - 10 MB [10 MB] (2011)

Annexes

1. The complete set of the reports on accounting requirements in force in November 2009 in the selected Countries:

2. Tables reporting the data processing of the Survey’s results divided as follows

  • Annex 2. A Users’ data and results
  • Annex 2. B Preparers’ data and results
  • Annex 2. C Accounting Professionals’ data and results
  • Annex 2. D Users’, Preparers’ and Accounting Professionals’ data in aggregated form
  • Annex 2. E Users’, Preparers’ and Accounting Professionals’ results - Figures and Tables

>>> Download the 5 annexes zip - 10 MB [10 MB]  

3. List of used abbreviations and definitions – glossary pdf - 172 KB [172 KB]

4. Questionnaires used for Users pdf - 66 KB [66 KB] , Preparers pdf - 41 KB [41 KB] and Accounting Professionals pdf - 64 KB [64 KB]

5. People interviewed

6. Key findings pdf - 12 KB [12 KB]  

7. Executive Summary pdf - 45 KB [45 KB] (available in French and German).

Accounting for small enterprises - Recommendations and good practices

It is recognised that appropriate accounting information is important for a successful management of a business whether it is large or small.

At EU level, accounting legislation is in place for listed companies, i.e. the International Accounting Standards/International Financial Reporting Standards and for non-listed limited liability companies, the Fourth and the Seventh Company Law Directives i.e. the Accounting Directives.
However, at EU level there is no accounting legislation applicable to those enterprises which are not listed or are not limited liability companies; in most cases we would be referring to small enterprises.

Because of the importance of appropriate accounting information for owners and managers of small enterprises and their different stakeholders, it is considered important to analyse the various accounting systems applied in Member States in the case of non-regulation at EU level.

The Project

A group of experts of national administrations from Member States and business organisations analysed various accounting systems applied by sole proprietorships/traders and partnerships with unlimited liability to identify how these accounting systems meet the actual needs of these small enterprises.

The objective of this project was to come forward with views on how to improve the accounting systems of small enterprises so that they can provide the owners, managers and other stakeholders with appropriate financial information. This was achieved through the identification and exchange of views in the area of accounting systems of small enterprises in Member States.
The purpose was in no way to add regulation or administrative burdens at EU or national level, which would be contrary to the aim of simplifying the business environment for small enterprises and reducing administrative burdens; therefore proposals to change the accounting legislation at EU level were beyond the scope of this project.

On the basis of collected data from Member States on applied accounting systems in small enterprises, the experts suggested a number of good practices for the accounting systems which may be considered appropriate for small enterprises according to their particular circumstances and needs.

The Report

 

For further information, please contact:

European Commission
Enterprise and Industry Directorate-General
Unit D.3 'SME Access to Finance'
B - 1049 Brussels                                                                                                                                                                                  Fax: +32 229-98025

E-mail: entr-sme-access-to-finance@ec.europa.eu

 

 

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