I recommend that the ability of small companies to file an abbreviated version of their accounts at Companies House should be abolished by appropriate amendments to sections 444, 449 and 450 of the Companies Act 2006.

All limited companies, including small companies, are required to produce a full set of accounts for their shareholders. Additionally however small companies are permitted by section 444 to produce a second version of their accounts, known as abbreviated accounts, for filing and public disclosure purposes. A main feature of abbreviated accounts is the omission of a profit and loss account.

The Company Law Review recommended after thorough consultation in 1998-2001 that small companies should be allowed to produce accounts with simplified format and content, and that in consequence the ability to file an abbreviated version of such accounts for public disclosure should be abolished as being no longer necessary or desirable. Ministers ignored the latter part of this recommendation, and abbreviated accounts continued to permitted under the new Companies Act 2006.

In the last 10 years the size criteria for small companies have been greatly increased, so that today companies with substantial assets or turnover can benefit from the small company provisions of the Companies Act. The only purpose of filing abbreviated accounts, in place of the full accounts circulated to shareholders, is concealment of the financial state of the company from third parties. This is contrary to the public interest. Companies which meet the small company criteria may supply services and products to the general public on a substantial scale, particularly in this internet age, and should not be permitted to conceal their financial condition. Furthermore, such companies may have other small companies as their suppliers, who are put at risk by not being able to check the financial condition of their customers quickly and cheaply at Companies House.

Abolition of abbreviated accounts would not increase the regulatory burden on small companies. If anything, it would reduce the burden by restricting the production of accounts by such companies to a single version rather than two versions.

Why is this idea important?

It will improve the disclosure of financial information on a large number of companies for the benefit of the general public and other companies, without any increase in the regulatory burden on small companies. The need for such disclosure in the public interest has become even more urgent in recent years with the growth in internet trading.

Leave a Reply

Your email address will not be published.