Small company financial reporting (SCFR) : an update based on recent developments and selected group perceptions
The main objective of this empirical research was to investigate whether there is a need for change in the accounting and audit requirements of small private companies in the UK, where there has been little empirical research or application of a theoretical framework for the analysis of the SC audit problems. In order to achieve the research objective, a comprehensive literature review of small company financial reporting (SCFR) was carried out to ascertain whether there was a generally acceptable auditing framework to offer possible solutions to the SC audit problems. It also sought to identify the role played by the main parties in SCFR, and to examine the main SCFR issues and arguments in the SCFR debate. Furthermore, a survey of SC accounts was undertaken to check whether the disclosures seemed to be consistent with the various financial reporting requirements. In addition, postal questionnaires were used to ascertain the views of selected directors and auditors of SCs about SCFR issues. The main findings of this empirical research broadly indicate, within a SCFR context, that: There is a generally acceptable framework for company audit but due to the characteristics of SCs, there are a number of weaknesses in its application to SCs. The literature review identifies possible solutions to overcome some of these problems. The survey of accounts indicates that there is an apparent improvement in filing of accounts within the statutory time limit and that there is a fall in the number of qualified audit reports. The survey shows that the majority of SCs do not take advantage of filing abbreviated accounts, and the extent of non-compliance with various financial reporting requirements appears not to be wide-spread. With respect to the surveys of the directors and auditors, the study identifies a number of similar views concerning the ownership and control of SCs by their directors and their families, the limitation of liability as the main advantage of incorporation and the need for an audit as the main disadvantage. Other similarities were the need for replacing full and abbreviated accounts of SCs with one set of accounts including a shortened profit and loss account with possible disclosures of turnover and profit before tax figures. Differences of view emerged over directors' and auditors' perceptions of the value of an audit, with a higher proportion of directors claiming them to be valuable. Cross analysis of results provided some assurances about the consistency of the above results. Comparing the results of these surveys with those of Page (1981), they appear to suggest that there are changes in directors' and auditors' attitudes over the last decade regarding the need for an audit and the main uses of SC accounts. In conclusion, this empirical research calls for simplification of the form and content of SC accounts and the relaxation of audit requirement for certain categories of SCs.