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Relaxation of accounting obligations may hit SMEs seeking finance

New Government plans to reduce the burden of red tape on small businesses could yet backfire, making it even harder for them to gain access to finance, a leading accountancy body has warned.
As the Government seeks to save micro businesses valuable resource by proposing a number of relaxations in relation to their accounting obligations, accounting figureheads have warned of “fundamental risks” in the plans, which could pose a threat to the national economy.
Dr Nigel Sleigh-Johnson, head of the Institute of Chartered Accountants in England Wales’s (ICAEW) Financial Reporting Faculty, believes the changes could result in "less transparency and less useful financial information" being recorded by small firms.
"This can have a negative impact on market confidence and on micro businesses’ ability to access finance," he said.
"Accessing appropriate finance is dependent, among other things, on confidence in the performance and prospects of the business.
"If the usefulness of available financial information falls, lenders may be less inclined to part with their money. That’s not a risk we would encourage [the Government] to take just now."
The Institute of Chartered Accountants in England and Wales has also warned of the potential "confusion and misunderstanding" that mixing accruals with cash accounting could cause.
Cash accounting involves paying tax on the amount of cash collected minus acceptable operating expenses.
The Government has already acknowledged that a lack of financial information on micro businesses may impact on their ability to secure access to finance.
It has already proposed an ‘SME credit database’ designed to ease the decision making process for lenders by providing them with informed data on prospective borrowers.

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