The utility of the statutory accounts to the directors of small private companies in the UK
The aim of this study was to investigate the factors that affect the utility of the statutory accounts to the directors of small companies in the UK. The directors' views are important, as they are the main users of the accounts; small companies are important because of the significant role they play in the economy. In this thesis, small companies are defined according to the 1999 EU size thresholds (turnover £4.2m, balance sheet total £2.1m, and employees 50). The study is set in the context of the continuing development of little GAAP in the UK; whereby small companies are offered some simplifications and exemptions from mainstream requirements. The government's rationale for regulatory relaxation is based on an assumption that it will reduce burdens. However, the costs and benefits of financial reporting by small companies is an under-researched area in the literature and, to a great extent, the views of the directors have been ignored. Proposals to raise the qualifying thresholds for small companies to the EU maxima have resulted in controversy, but so far, the debate has been dominated by mainly anecdotal evidence from the regulators and the accountancy profession. The present study addresses this deficiency and is set within a positivist paradigm. The methodology included a small preliminary survey and exploratory interviews. The main survey took the form of a postal questionnaire sent to a random, systematic sample of independent, private limited companies filing full accounts. The sample was chosen to represent those that were likely to qualify for little GAAP as well as those were likely to do so if the thresholds were revised to the EU maxima at the time of the survey in 1999. Usable responses were received from 385 companies, giving a response rate of 17%. Tests for generalisability and non-response bias were non-significant. Due to the nature of the selection criteria and limitations of the sampling frame, the findings cannot be generalised to companies with a turnover less than £0.5m, very young companies that had failed before filing accounts or those that had not filed full accounts at the time of the survey. The research updates and extends previous knowledge. The study reveals a considerable amount of detailed information concerning the factors that influence the directors' financial reporting choices and the factors that influence their use of the statutory accounts. Using a series of logistic regression models, four factors were found to be significantly associated with the utility of the statutory accounts :from the directors' point of view: The accounts are audited. The annual accounting package includes management advice or recommendations from the accountant. The accounts are used for planning, control, long and short-term decisions. The accounts are used for confirmation, assurance and inter-firm comparison. The empirical evidence provided by this thesis makes an important contribution to knowledge by developing financial accounting theory and aiding evidence-based policy decisions on financial reporting by smaller entities.