Q8: Is there value in developing a common EU level accounting standard for small and mediumsized companies listed on MTFs? Should such a standard become a feature of SME Growth
Markets? If so, under which conditions?
Developments in accounting standards have the ability to meet the objectives of Capital Markets
Union by improving access to finance, especially for SMEs looking to secure investment, and also by
increasing levels of cross-border comparability across the single market. However, we must ensure
that measures in this field are proportionate, particularly with regard SMEs, where the relative costs
of implementing and maintaining standards are far higher. We would advocate more being done to
promote the use of international accounting standards and inform firms of the benefits they could
bring, but the EU should not be looking to become a standard setter and should not be imposing
decisions on SMEs that could actually have the effect of restricting access to the market.
The UK strongly supports the work of the International Accounting Standards Board (IASB), and the
continued development of a harmonised framework of International Financial Reporting Standards
(IFRS), which have increased access to global capital markets and removed barriers to cross border
investment in the EU. However, for the benefits of this work to be fully realised, standards must be
consistently enforced at a national level. This consistency is necessary to give investors confidence in
the comparability and uniformity of accounts drawn up in different jurisdictions. Consistency of
implementation should be kept under review to identify if significant divergences exist, and if so, to
what extent they hinder cross border investment and how they may be best addressed.
The Green Paper correctly highlights that increased transparency and comparability has the
potential to increase SME access to finance. The EU should work with the IASB in considering how
internationally harmonised accounting standards could be better used by these enterprises, while
comprehensively evaluating any potential burdens that may be incurred if standards are forced upon
businesses.
Before taking any action, it is important to note that significant legislation has been undertaken
recently to refresh accounting and auditing rules in the single market, much of which is still being
implemented, and any further work in this area will need to reflect these developments as we
collectively look to ensure that publically available financial data is robust and reliable. Similarly, the
recommendations of the Maystadt review of the European Financial Reporting Advisory Group
(EFRAG) have only recently been implemented, bringing with them a quite sizeable shift in the
administration of accounting matters in the EU, and we should allow time to pass before focusing
again at issues of governance and the role of IFRS.
The establishment of the SME growth market category under MiFID II provides a real opportunity for
businesses to access capital and raise their profile, and as they are increasingly utilised we will need
to ensure accounting standards are effective. However, new standards that diverge from
international frameworks and which could increase burdens on firms by forcing them to draw up
statements on different basis for different purposes would not help achieve the objectives of the
Capital Markets Union. Equally, we must ensure that any developments do not lead to a reduction in
the quality of reporting or require SME growth markets to accept weaker accounting standards for
member firms.
A preferable alternative to devising new and potentially burdensome rules for use on SME growth
markets may be to explore ways to promote the voluntary use of existing international standards
more generally. Firms who are thinking about listing in the future may wish to adopt IFRS early in
preparation, while “IFRS for SMEs” would be an appropriate accounting standard for many SMEs in
the EU as they look to develop their ability to access credit and capital on the market.
IFRS for SMEs is a standard with significant international take-up that would allow comparability
with large firms listed under full IFRS as well as SMEs listed under IFRS for SMEs internationally. The
IFRS for SMEs standard totals 230 pages, compared with the full 2,800 page IFRS, it is less complex,
limits accounting policy choices and requires roughly 90% less disclosure. To enable its use in the EU
would require an appropriate legislative basis – along the lines of IAS Regulation 1606/2002.
There may also be considerable value in assessing whether all credit institutions should be subject to
full IFRS, particularly if such a measure would improve supervision. In developing new approaches, it
will be important to ensure any impact assessment is comprehensive.