New Proposal by the European Commission

In July 2007 the European Commission published proposals to make important changes to the legal rules on accounting and auditing for small and medium-sized companies (SMEs). These proposals have been developed as part of a broader initiative on the part of the EU to reduce burdens on business, especially SMEs.

Summary of proposals
Under European law which has been in force since the 1970s, all limited companies throughout the EU must prepare annual accounts, prepared on a standard basis, and file them with their national companies registry (which in the UK is Companies House). Companies which qualify as 'small' or 'medium-sized'1 in accordance with fixed size criteria benefit from certain exemptions from these standard rules. Most importantly, member states may allow small and medium sized companies to file with the registry not their 'full' accounts but so-called 'abbreviated accounts', which disclose a reduced range of information. Member states may also exempt small companies from having their annual accounts audited.

The Commission is now proposing the following main changes to the current rules:

there should be established a new category of 'micro-company', the parameters of which would be maximum turnover of 1 million euros (c£700,000), net assets of 0.5 million euros (c£350,000) and a maximum of 10 employees. Member states would be empowered to exempt micro companies from all legal rules regarding accounting and auditing.
Medium-sized companies where the manager is also the principal shareholder would become subject to the same accounting and reporting rules and exemptions as small companies.
Small (and micro) companies should be exempt from any legal requirement to publish their accounts on the public record.
The 'adaptation period' which determines whether companies qualify as small or medium-sized companies should be extended from two years to five. Accordingly, a growing company would qualify as a 'small' or 'medium-sized' company only if it met the applicable size criteria in the current year and each of the four previous financial years.

Currently, EU rules say that a small company is one which meets two out of these three criteria in the current and preceding financial year - turnover below 8.8 million euros (c£6.16 million), gross assets below 4.4 million (c£3.08 million) and fewer than 50 employees. A medium sized company under EU rules is one which has turnover below 35 million euros (c£24.5 million), gross assets below 17.5 million euros (£12.25 million) and fewer than 250 employees. Neither the UK nor the Republic of Ireland has yet adopted these maximum financial thresholds to define small and medium-sized companies in their territories. In the UK, a small company is currently one which has a maximum turnover of £5.6 million and gross assets of £2.8 million while a medium-sized company is one which has a maximum turnover of £22.8 million and gross assets of £11.4 million. In the Republic of Ireland, a small company is one with maximum turnover of 3.8 million euros and gross assets of 1.9 million euros while a medium sized company is one with a maximum turnover of 15.2 million euros and gross assets of 7.6 million euros. Both the UK and ROI adopt the current EU employee thresholds, ie 50 for small companies and 250 for medium sized companies

Source: http://www.accaglobal.com