LAST WEEK I received a package that had cost £3.32 to post and weighed just short of a kilo. It contained eight booklets of draft standards from the Accounting Standards Board (ASB) and the International Accounting Standards Board (IASB). If any of you suffers from terrible insomnia, let me know and - if you pay the postage - they are yours.

Not only are these eight standards boring, for most UK companies they are also irrelevant. Over the next few years, the accounting rules and standards under which you prepare your annual reports and accounts look set to change dramatically. Much of the attention has focused on the fact that the European Commission has decided that all European quoted companies must comply with International Accounting Standards (lASs) from 2005.

Those of you in non-quoted companies can't switch off. The ASB, which sets out the accounting framework for every size of UK company, is revisiting all its standards to ensure that they are in line with lASs. And that's why my one-kilo parcel is important, if dull.
To confuse the situation even further, we are expecting - probably this autumn - a response from the government on the final report of the Company Law Review (CLR), which should herald a new Companies Act within a couple of years. One of the CLR's overriding principles was "think small first." In other words, the corporate reporting framework should be designed around smaller companies with specific add-ons for larger quoted businesses. At the moment, the system is built mainly for a small minority of large corporations with a series of exemptions for smaller companies.

That all sounded fine a year ago. But then the Enron and WorldCom debacles put financial reporting and accounting under the microscope. A major casualty of the disasters may be the "think small first" principle.
It's a shame but it's also inevitable.

In some ways, I can see the logic of the IASB's position. Its primary purpose is to assist the flow of international capital. That basically adds up to accounting for large quoted companies. In the current climate, it means tightly written and detailed standards. Smaller quoteds barely register for trans-national investors, never mind the majority of companies that don't have a listing.

However, this neglect can be used by the small and medium-sized sector to its advantage. Growing UK companies already have an input into the standard-setting process that really matters to them: the Financial Reporting Standard for Smaller Entities (FRSSE). It was originally issued in 1997 as a recognition that the accounting requirements and disclosures for large and small companies were sharply diverging. It brings together the relevant accounting requirements and disclosures from all the Financial Reporting Standards (FRS) and the Urgent Issues Task Force (UITF) abstracts, suitably simplified and modified. The fundamental point is that the basic measurement requirements are the same for the largest multinational and the smallest limited company.

The advantage of FRSSE is that FDs in companies with turnover of less than £2.8m - the vast majority of UK companies - have a single comprehensive accounting standard containing measurement and disclosure requirements. And there is hope that the FRSSE will get even more useful. The ASB has put the Committee on Accounting for Smaller Entities (CASE) in charge of the FRSSE. CASE is chaired by Isobel Sharp - a member of the ASB - and its members represent varied facets of smaller companies, among them business people, preparers and users of accounts and accounting practitioners. Sharp has spent time going out to meet representatives from this area of business and would welcome more input. At the moment, FRSSE is limited to accounting standards but Sharp wants to extend its remit by incorporating into the FRSSE all relevant company law.

It would give growing businesses a realistic financial reporting framework. However, it would not be a simple task to move from an edited version of current FRSs (essentially the FRS without the disclosure requirements) to a one-stop financial reporting and company law booklet. CASE has to deal with both the government on the future company law regime and the IASB as it starts to bed down its standard-setting process. Tricky, but not impossible.

The prize for growing companies, if CASE achieves its aim, would be considerable. So you should look out for the new FRSSE in the next year or so. Smaller companies can't change the system that the big boys need but they can give themselves an effective vehicle for a realistic financial reporting process through a super-FRSSE.

Peter Charles is a finance director who specialises in turnarounds. You can contact him at peter@petercharles.com