Comment: A leading economist recently said that the small and medium-sized enterprise (SME) sector and, in particular, appropriate measures to assist it, had been largely ignored by the Government during the upward progress of the Irish economy over the past decade. He argued that this should become a priority for the Government as it attempted to put in place some cushioning measures should the State's economic fortunes take a turn for the worse.

During the past decade, the Republic and the world beyond have had their fair share of corporate impropriety and we have had national, US and European responses to these. In recent years there has been an unparalleled rise in business regulation, new legal obligations and the creation of new enforcement agencies.

While well-intentioned, these have had a scatter-gun impact on Ireland's SME sector. Domestically, such measures have included the establishment of the Office of the Director of Corporate Enforcement, the creation of the Irish Financial Services Regulatory Authority and a significant increase in the powers of the Revenue.

These initiatives have, for the most part, resulted in a greater awareness of responsibilities among companies and their directors, but it is now being argued that the pendulum has swung too far, and that it is time for proportionality to be considered as part of the regulatory process.

Recent regulatory initiatives have had a disproportionate impact on SMEs. This was recognised in the European Charter for Small Enterprises published as part of the EU's Lisbon Agenda. "Small enterprises," it said, "are the most sensitive of all to changes in the business environment. They are the first to suffer if weighed down with excessive bureaucracy. And they are the first to flourish from initiatives to cut red tape and reward success."

New regulations at national and EU levels should be screened to assess their impact on SMEs.

Recent Government initiatives aimed at reviewing the needs of this sector are to be welcomed. One such initiative, in 2005, has been the Small Business Forum and we await its report with anticipation. The forum's terms of reference included consideration of the priorities set out in the European charter, which also identified the possibility of exempting SMEs from certain regulatory obligations.

One such obligation identified by the Institute of Chartered Accountants in Ireland (ICAI) in its submission to the forum is the requirement for small entities to have a statutory audit.

EU legislation permits member states to exempt a small company from the audit requirement where it meets a number of criteria, including a turnover of up to €7.3 million. There are proposals to increase this to close to €9 million.

More recently, the ICAI published a discussion paper calling for the Republic's exemption level to be increased to the maximum permitted by EU law. Two key imperatives in arriving at this position are competitiveness and costs.

Since early 2004, the audit exemption threshold in Northern Ireland has been £5.6 million (€8 million), equivalent at the time to the EU maximum threshold. At today's exchange rates, this would equate to in excess of €8 million. The current turnover threshold in the Republic is €1.5 million.

In fairness to Government, when the exemption threshold was last increased, in 2003, it was done to align the position of small Irish companies with that of its UK counterparts. However, no sooner had this been done than the UK increased its exemption level to the maximum permitted, thus re-establishing the disparity. If it was appropriate for the exemption thresholds to be aligned back in 2003, why should this still not be the case in 2006?

The original company law requirement for a statutory audit derives from the separation between the owners (shareholders) of a company and its managers (the directors). The purpose behind the production of annual accounts and the annual audit is to assist shareholders in assessing the performance of the day-to-day managers.

The continued need for a statutory audit, which provides a powerful source of external assurance on a company's annual accounts, derives from the same circumstances. However, does such a need exist where the "managers" and "owners" are the same individuals? After all, by definition, owner managers have day-to-day involvement in the running of their companies.

The cost issue has recently been compounded by the introduction of revised auditing standards designed primarily for the audit of listed entities. These standards represent an important step towards the reaffirmation of public confidence in capital markets. However, some commentators have estimated an additional audit cost as a result of up to 20 per cent.

Recognising an apparent reluctance among regulatory agencies to move away completely from some form of external assurance being provided on a company's accounts, the ICAI paper also highlights that there are alternative forms of assurance to the statutory audit that, while being less costly, are quite likely to meet the public interest needs.

The ICAI paper has received a positive reaction from business representative organisations and politicians alike. The institute continues to be an advocate of regulation that is balanced, proportionate and in the public interest. The application of this philosophy to the SME sector is long overdue.

John Greely is president of the Institute of Chartered Accountants in Ireland