On 26 February the EC issued a legislative proposal for simplifying the financial reporting requirements for micro entities. This follows a consultation during 2007. The simplification proposal involves allowing Member States to exempt micro entities from the Accounting Directive and therefore from the requirement to prepare annual accounts in accordance with the law. In place of the European legislation Member States would be free to establish their own requirements for financial reporting.
There is also a wider consultation on the scope of the Accounting Directive to address the possibility that not all Member States will take advantage of the relaxation and also to consider how the Directive should apply to SMEs that do not meet the definition of micro entities. Comments on this wider consultation are requested by 30 April 2009.
In the original consultation micro entities were defined as those which satisfied two out of three of the following categories:
Fewer than 10 employees;
Turnover below €1m;
Total Assets below €500k
It is estimated that these criteria apply to 85-90% of UK companies.
The UK is likely to be one of the States that takes advantage of the proposed new regime on the basis that the Government supports to overall principle of simplifying the administrative burdens on small business and the concept of micro entities.
UK consultation on the proposals is likely to take place later this year.