New EU proposals to abolish financial reporting requirements for
micro-entities will have a negligible impact on the bottom line of
European accounting firms but are being blasted by professional
bodies across the continent.

The EC proposals, released last month, give member states the
option to exempt micro-entities from accounting and audit
requirements in the Fourth Council Directive. The EC hopes the
changes will result in cost savings as high as €6.3 billion ($8.05
billion) in areas such as external accounting and audit.

Moore Stephens Berlin partner Jens Polls said only very small
firms that do not provide audit and other assurance services might
be affected – although much of these smaller firms’ work is

“It is changing from more regulatory work to more compliance
work concerning tax compliance. So the emphasis would change but I
think the work for accountants would not get any impact,” he

Increasing the audit threshold has much more potential to impact
the German accounting profession, Polls said.

“This is much more relevant for the structure of the profession
because that would mean some smaller accountancy and audit firms
would no longer perform audits and that would change the
composition of the profession more,” he explained.

Some requirements remain

Micro-entities are defined as companies that do not exceed two
of the three following criteria: a balance sheet total of €500,000;
net turnover of €1 million; and, an average of 10 employees during
the financial year.

Basic bookkeeping requirements will remain untouched and some
national statutory accounting rules will still be present under the
new proposal. Tax accounting and voluntary audit for external
stakeholders will continue to require assistance from professional

Mazars’ head of international service line for owner-managed
businesses Alistair Fraser welcomed the reduced regulation but
expected little impact on business. He said it may provide the
opportunity to talk to clients more about advisory related issues
rather than being tied up with compliance work.

“There is the need for micro-entities to engage accountants
irrespective of having to follow statutory accounting requirements
[to understand their business]. There are still practical issues on
a local level on how you set accounting rules and disclosures that
give tax authorities, creditors and banks the information that they
will require,” he said.

Erik Emilsson is managing director of MGI Revideco, a
four-partner audit and accounting practice in Sweden. He agreed the
simplification initiative would have minimal impact on his practice
but said Swedish changes to remove statutory audit and reform tax
regulations would have a far greater impact.

The European Federation of Accountants and Auditors for Small
and Medium-sized Enterprises (EFAA), which says it represents more
than 200,000 accountants and auditors, has criticised the

“The proposal is a step back from harmonisation of accounting
rules in Europe and further complicates the business environment.
Exempting more than 90 percent of enterprises defeats
transparency,” EFAA president Federico Diomeda said.

One size does not fit all

The Federation of European Accountants (Fédération des Experts
comptables Européens – FEE) supports simplification, but doubts the
commission’s proposal will result in cost savings.

Speaking in January before the proposal was released, Compagnie
Nationale des Commissaires aux Comptes European Affairs officer
Jean Luc Doyle said the French institute was broadly supportive of
simplification but was “very upset and concerned by some of the
issues, particularly those dealing with auditing and

“The route taken by the commission is really a disaster and
would affect about 80 percent of French companies,” Doyle said.

“We are not against simplification per se but clearly if you try
to provide a definition of what a [micro-entity] is all about in
the UK, or Germany, France or Italy, you can’t base your approach
simply on thresholds.”

Institute of Chartered Accountants in England and Wales chief
executive Michael Izza said the exemption had significant
cost-saving potential for UK businesses but distinctions had to be
made between reporting obligations that were necessary to protect
the public interest and those that could be removed.

European Parliament and member states will now debate the

Nicholas Moody