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Accountants speak out against BIS cash accounting proposals

Accountants speak out against BIS cash accounting proposals

Will contractor accountants suffer if the latest cash accounting proposals from the Department of Business, Innovation and Skills are written into law?

The latest plans to reduce red-tape for micro-businesses were drawn up in conjunction with the Financial Reporting Council and if approved would mean the UK’s smallest entities would produce simplified trading statements and annual returns.

It has also been suggested that these businesses adopt cash accounting rather than the traditional accruals method of recording transactions. Cash accounting is seen as a simpler way of book-keeping as it records income when it is received and expenses when they are paid. Despite this, accruals accounting is still considered to give a better reflection of the financial status of a company.

If the new proposals were adopted, smaller businesses may not be so reliant on accountants. The mid-tier firms have been putting on a brave face and saying that they would be able to tailor their services to meet the needs of micro-businesses.

However, questions have been raised as to whether the cash accounting proposals would be acceptable under EU law. The European Commission proposed to exempt micro-businesses from some of the regulations governing the preparation of company accounts back in 2008, and although the European Parliament accepted the motion, the Council of Ministers did not. Therefore BIS would be in contravention of EU law if it implemented its cash accounting proposal.

Meanwhile, the majority of accountants seem to be against the proposal. John Davies, the head of technical at ACCA, said cash accounting reports would be inferior to those of other companies, whilst the Accounting Standards Board’s chairman, Roger Marshall, said small businesses need the picture provided by accruals accounting in order to assess whether they are running at a profit or a loss.

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Image: Speak up, make your voice heard by HowardLake

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