18 May 2015

ACCA responds to the EU Consultation on Capital Markets Union

Richard Martin, head of Corporate Reporting at ACCA says: “We identified four types of particularly affected businesses that we think initiatives entailed  in the EC consultation have the potential to address: young and informationally opaque businesses; fast-growing, innovative SMEs relying heavily on intangible assets; internationalised SMEs, and SMEs experiencing sudden credit rationing from suppliers.”

For the global accountancy body, with a decades-long trend for advanced economies to build intangible as opposed to tangible capital, the providers of debt finance, and banks in particular, would find it difficult to finance such assets under their current business models. 

Richard Martin explains: “The changing nature of public and private capital means that it is extremely difficult now for businesses to finance growth by debt. Other types of finance, including quasi-equity and mezzanine finance need to fill this gap. Financing today’s technology-based businesses is typically only possible through equity. This channel of funding should assume a greater role in the EU Commission’s financing strategy.”

Richard Martin, commenting on the issue of the availability and standardisation of SME credit information, notes that: “While initiatives are being developed on credit information systems, the promotion of the importance of good financial information and its mitigating effect on access to finance will be of critical importance and should go hand in hand with any new proposals. In that regard, the revision of the Accounting Directive, with its many explicit and implicit options, does not provide the basic financial information about SMEs on a standardised comparable basis across the EU.” 

“Moreover, recent efforts in reducing reporting requirements for certain firms, such as micro companies in Europe, raise further concerns and are likely to only exacerbate the shortage of financial information on SMEs, as stated by the World Bank in recent reports” Richard Martin adds.

On the issue of developing a common EU-level accounting standard for all companies listed on multilateral trading facilities (MTFs), ACCA believes that it would help foster wider involvement with these markets, with the potential advantage of greater liquidity for the market participants and greater access to finance for the companies involved.

Richard Martin explains: “We see various possibilities to achieve that. Firstly there could be a European set of accounting standards developed for these companies. This could have the advantage of being specifically designed for this purpose, but it would have the disadvantage of being less recognised by investors, including those from outside of Europe, and this might take a long time to develop. Secondly, the IFRS for SMEs option, but the standards are specifically not intended to be used by MTF companies with public accountability. 

“We would thus favour that for the CMU these companies should be required to prepare financial statements using full IFRS. This would have the advantage of maintaining a simpler system of reporting in Europe – one which used either IFRS or was based on the Accounting Directive, and to be recognised by investors and others as producing relevant, reliable and comparable financial information”.

“It would not, however, address the concerns over the burden of complexity. The IASB has a disclosure project to re-consider the IFRS to try to make the disclosures more proportionate. If this progresses then one of the main objections to IFRS for companies on MTFs, or in due course on SME Growth Markets, might be mitigated. 

“ACCA is organising a joint event with Barclays, in collaboration with UEAPME and EGIAN on Maximising the Capital Market opportunity for SMEs and Start-ups, on 26 May in Brussels, to discuss these issues with EU decision-makers and stakeholders” Richard Martin concludes.

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