Guest Post: Financial Reporting: Why some Red Tape is better…
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Setting the correct regulatory environment for business is not only one of the most important tasks for government, it is also one of the most difficult. Even when politicians are able to ignore the distractions of party politics, ensuring that big business is controlled while small business is free to grow, can be tough.
It is encouraging therefore that the Coalition government is trying to improve the situation by signalling its intention to cut business red tape. The cynics will say that generating ‘soundbites’ about cutting red tape is about as much as this government can do at present. However, whether you believe this or not, it is a generally accepted that cutting red tape does help businesses to prosper. It enables existing businesses to save time and money so they can become more efficient and more profitable, while also encouraging entrepreneurs to start up new ventures.
This is not to say that every policy aimed at cutting red tape should be commended and waved through unchallenged. One proposal that has been suggested involves removing the requirement for the smallest companies to file annual accounts at Companies House. While some business owners would gladly rid themselves of this, the full implications of such a move should be examined. Firstly, we should not forget that the economic downturn we are experiencing at the moment is a direct result of uncertainty about economic risk. Do we really want less information to base our judgements on? Also, at a more micro level, the importance of financial information to any business should not be forgotten. As well as helping owners, managers, directors and shareholders to make decisions, it is a vital part of successful applications for small business loans.
Bringing this back to where I began, the task of setting the correct regulatory environment in which business can succeed is an unenviable one. Cutting red tape is one of the few weapons the government has in its arsenal and it would be wrong to imply it shouldn’t use it. However, before it declares all out war on the area of financial reporting, it would do well to step back and consider the collateral damage such a campaign could cause.
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This is a guest post by Joe Carstairs (@JWCWords), who provides his own commentary on accounting and finance industry issues; Joe was formerly a market reporter for EuroWeek, and currently blogs for a number of leading finance and small business publications.
