Draft Limited Liability Partnerships, Partnerships and Groups (Accounts and audit) regulations 2016

Kevin Brennan Excerpts

Thursday 21st April 2016 General Committees

[Kevin Brennan (Cardiff West) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer, I think for the first time. I thank the Minister for stepping in at the last moment as super-sub for the Minister for Small Business, Industry and Enterprise. At least he acknowledges his ignorance at the outset rather than revelling in it, as the Minister he has replaced so often does when we are discussing detailed regulation. I welcome his offer to write to the Committee should he be unable to answer any of my questions, although I have great confidence in his ability to do so.

We do not intend to divide the Committee on the regulations, which are welcome and sensible measures to tidy up accounting arrangements, but I have a few questions that were raised, in particular by the ICAEW, during the consultation on the regulations. The ICAEW agrees that the Government should amend the accounting and audit regulatory framework to mirror the recent changes to the framework for limited companies, and we share that view. That seems sensible. It is also sensible to take steps in relation to the introduction of the micro-entities regime and amendments arising from the implementation of the new EU accounting directive. Having different rules for limited liability partnerships and companies is a burden on business that the Government are right to tidy up. We support the general thrust of what the Minister and the Government are trying to achieve.

Nevertheless, the ICAEW continues to have concerns about the long-term implications of the micro-entities regime and the revised regime for small companies. In particular, it is concerned about the impact that the reduced information in micro-entity accounts and abridged accounts under the revised small companies regime may have on the ability of businesses to access finance. I will come to my questions in a moment, but they will relate to what I am saying.

The ICAEW is also concerned about the limited disclosure requirements under the revised small companies regime in the context of the responsibility of directors to ensure that accounts show a true and fair view. On that basis, although the ICAEW believes that there are important benefits to aligning the framework for limited liability partnerships with the recent changes for limited companies, it continues to urge the Department to monitor the effects of the revised regime over time, particularly on the quality of financial statements produced by small and micro-entities. I think that the Minister said that the Department intends to do that and that he can give a commitment that it will do that. If I heard him correctly, he said that the intention was that the Department would monitor that over the next five years, with a full review in 2021. If he can confirm that my understanding is correct, that would be helpful.

Any findings will be important when the impact of the accounting directive is reviewed in due course by the European Commission. How will the changes be monitored by the Department? In particular, how will the effects on the quality of financial statements produced by micro-entities be monitored? I am grateful that the Minister has confirmed that the intention is to undertake a full review by 2021. Does he have any information for the Committee about when the European Commission will review the impact of the directive and the changes associated with it?

Has the Minister any comment to make about the impact of a decision—this is relevant to what we are discussing—in the referendum in June to leave the European Union? What impact will that have on the statutory instrument we are discussing today? After all, it relates to, and is a consequence of, a European directive. If he can give us any feel for whether we will have to return to this issue in the near future should there be a vote to leave the EU, I would be grateful. Obviously, I would resist that vote to leave, but if it happens—we have to entertain that prospect—what are the implications for the regulations? If there are any unintended consequences, will he commit that the Department will come back to the House as quickly as possible to try to rectify them?

The ICAEW also expressed concerns about the time it has taken for the change to be brought about. It said that it is unfortunate that the process has been subject to “significant delay”. Can the Minister explain why that is? The ICAEW said:

“This has made it difficult for LLPs to plan ahead, resulting in costs and uncertainty for business that could…have been avoided.”

Are any of those costs reflected in the impact assessment that I have read, which the Department published alongside the regulations? Are any of the costs of the delays in bringing about the changes, as mentioned by the ICAEW, reflected in the impact assessment? Why has there been a “significant delay” in bringing the changes about? The ICAEW urges that the Department updates the regulations

“without any further undue delay in order to avoid uncertainty and costs for business.”

I hope the Minister can answer those questions, although I appreciate he is standing in at the last minute. If he is unable to answer all the questions I have asked, I would be grateful if he wrote to me and other members of the Committee with any answers.