New SME accounting could cost businesses £80m

News Article - 04 November 2010
Category: Business

UK businesses could see costs rise by £80m if new accounting rules are introduced, according to an estimate revealed recently. The UK Accounting Standards Board (ASB) revealed the estimate as it launched new accounting codes to be used by around 80,000 UK SMEs.

The £78.9m price tag includes training, software, external advice, preparation, and transition and labour costs. The ASB believes the costs will be recovered through better access to bank finance as a direct result of the new standards. According to the board, if the new standards cause a 0.25 per cent fall in the cost of borrowing, UK businesses could save around £250m. However it does admit that "benefits are impossible to quantify in a realistic way."

The new rules, which are based on international financial reporting standards (IFRS), are expected to simplify and improve the UK's current accounting platform, which has been criticised widely in recent years. Industry experts remain concerned it will increase the burden on firms and reduce the time available to be spent on mission-critical tasks.

Richard Carter, corporate law and governance director at the Department of Business, Innovation and Skills (BIS), previously stressed that any changes to the current accounting system UK GAAP should lead to a net reduction in burdens on businesses to ensure a worthwhile transition. ASB member Edward Beale made the case that accounting framework changes are, at this late stage, an unnecessary distraction.

Industry reaction to the ASB announcement was cautious yet welcome. There was general approval over the long-term effects of the new standards on simplifying the UK accounting system but concern they would lead to far ranging implications for tax, banking arrangements and performance management.

If the new standards are introduced, SMEs may find short-term cash flow becomes unstable due to the burden of increased costs. Measures must be taken to ensure sufficient liquidity to handle the extra burden in a cost-effective and compliant manner.

Access financial software can help in two ways: it is regularly updated in accordance with legislation changes so that firms remain fully compliant, helping to reduce the chance of reputational and financial penalties. It also provides companies with key data - such as real-time depreciation of valuable assets - allowing them to more easily take appropriate action to improve profit margins and the overall efficiency of the business. This can improve the general financial situation and put the company in a better position to absorb the costs associated with the new standards.

For more information, please contact Access on 0845 345 3300.

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