Crisis, what crisis?

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In the latest UK200Group blog post David Macdonald, Managing Partner The Martlet Partnership reflects on the value of financial reporting.

David Macdonald
I read in my paper this morning that our Prime Minister has acknowledged that the country is in crisis. Apart from being amazed that it has taken her two years to work that out, and the fact that I am not going to mention the “B” word again, I think it seems to me that there is an awful lot of dysfunctionality in our glorious kingdom at the present time.

Whilst society manages to continue unabashed, and whilst we are not actually in a crisis in terms of the financial reporting, I have some reflections on the work we now do and how much value it provides to users of financial statements or indeed anybody at all.

When “I were a lad”, working in a fairly large regional provincial practice, the preparation of limited company accounts wasn’t terribly complicated. We were just transitioning from the 1948 Companies Act to the 1980/81 Companies Act. The country had been suffering from some years of rampant inflation and during my studies, SSAP16-Current Cost Accounting was one of the main features of the financial accounting exam although in practice nobody took any notice of it and certainly the firm I worked at never produced any accounts under current cost accounting.

However, the companies’ accounts presentation was revised with the new act and seemed to me to be fairly clear and convey quite a lot of useful information in the notes to the accounts.

We have now progressed to a state where we have an array of possible accounting options and in general, in my experience, the fewer choices one has, probably the better.

I understand the desire to produce micro-entity accounts so as to attempt to reduce the administrative burden of the very smallest enterprises.

However, I do question the value of the information that is made available in these accounts.

We now have no notes to the accounts whatsoever. Most small businessmen and there are some pretty decent small businesses which qualify as micro-entities, are often driven by the amount of tax they have to pay, the state of their directors loan account at the end of the financial period and the dividends they have drawn in that period.

None of that information is now found in the statutory accounts. When we come to the accounts published at Companies House, we now have one page and we are also supposed to show the number of employees in the entity and also any financial commitments that entity has. If we are talking about a small shop with a 25 year lease, the financial commitments will be completely disproportionate to the numbers in the balance sheet.

When we go to the other extreme, we have large corporation documents for quoted companies with a vast amount of commentary, pictures, graphs etc. Not long ago, when traveling to London, and having learnt that Debenhams Plc had had a poor trading year, I decided to look up the company’s accounts, mainly out of interest, to see what sort of state the company’s affairs were actually in.

Now, of course, a large company is going to need to provide financial information which is a lot more detailed than a micro-entity but these accounts consists of 164 pages.

There are no actual accounts in this document until page 90. Then we have an auditor’s report which is 9 pages long. 9 pages of small print A4!

The accounting policy note is also 9 pages long. It seems to me that at each end of the spectrum we either have information which is insufficient to provide anything meaningful and on the top end of the scale, so much information that unless somebody is highly expertly financially trained, the information is excessive.

Can we simply not have a suitable sense of proportion throughout the reporting function?

Tags: UK200

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