ALE from the CAN

Accounting for the local economy

ALE from the CAN is a Corporate Accountability Network project that will be developed as funding is secured to permit it. ALE stands for Accounting for the Local Economy.

  • What the current problem with ALE is
    • The relevance of the data included in the accounts of most small companies has declined considerably in recent years;
    • The requirement that the accounts of most small companies be audited has been abolished, and with that quality control has been lost;
    • The legal demand that the accounts prepared by companies for the benefit of their shareholders be filed on public record has been relaxed. All that now need be recorded on public record is a very limited balance sheet;
    • The need to even file a list of owners of the company has been removed from the law: only those who have significant interest now need be disclosed, meaning that wholly anonymous company ownership is now possible. It is entirely possible that the ownership of companies in a local economy will not now be known;
    • Accounting has been reduced from being a core communication tool for local business to something that can safely be ignored, unless it is to meet the demands of HM Revenue & Customs. Even bank managers would rather have the current print out from the business’ own accounting software than the accounts an accountants produce, because that information is likely to be more up to date, and probably communicates more;
    • The result is that just at the time when there is an enormous need for a revival of faith in the local economy the accounting that is required to provide people with the confidence to deal with each other simply does not exist.
  • What we think ALE requires:
    • The local economy is in need of revival across the UK
      • This is the idea behind ‘the circular economy’;
      • It is reflected in the Green New Deal that is now attracting political attention;
      • And many local authorities already embrace – and profoundly encourage – the idea because they know it is good for their local economy;
      • The logic is simple. It is that the more money that circulates in the local economy the greater its local impact is. There is a local ‘multiplier’ effect from each pound spent locally which is lost if it leaves the local economy;
    • For the local economy to work at its best does, however, require these things:
      • The ability to identify local business at a time when the High Street is by no means the only place to find who is trading locally;
      • Information on those you want to trade with when you’re not otherwise familiar with them;
      • Information on who you might want to work for locally when choosing an employer can be one of the biggest risks that you can take;
      • Evidence about:
        • Who controls and manages the local business you are engaging with;
        • What the company really does, and where;
        • How big that local business really is, meaning information is needed on:
          • What it’s level of sales might be;
          • How many people it employs;
          • How much it pays its staff, on average and so on average pay;
          • Whether it’s got the finance to survive in the long term e.g.:
            • Are shareholder funds growing?
            • Are its current assets (stocks, debtors and cash) greater than the sums it owes to people (trade suppliers, tax, the bank and other borrowings)?
          • An easy way to access this data that almost anyone could comprehend.
  • What the ALE programme will do:
    • Suggest the data that is needed to identify local business:
      • Where those businesses are;
      • Who owns them;
      • Who runs them, and what the risk assessment of dealing with them might be;
    • Suggest the information required to identify what a local business really does:
      • This might just be a web link. Ideally it might be something much more. Of all the data suggested here this is likely to be the easiest to provide since many businesses will already be doing this;
    • Provide the accounting data that takes the risk out of buying locallye.g.by reporting:
      • How big the company is indicated by:
        • Turnover (sales);
        • Number of employees;
        • Assets invested;
        • Trends in these over time;
      • How well the company pays by estimating how many days the company takes to pay its suppliers on average;
      • A measure of ‘resilience’ that suggests whether or not this company might be relied on. This could be provided by a traffic light system indicating:
        • Has the company been in business one, two or three years or more?
        • Is it growing year on year?
        • Is its number of employees growing?
        • Are its average payments to employees growing?
        • Are its trade creditor days stable or, preferably, falling?
        • Is the amount of money invested in the company growing?
        • Is the company likely to be able to pay its debts as they fall due?
  • How the ALE programme might be delivered:
    • It’s suggested that this service will only available to companies that can produce accounts that meet the ALE standard. This will require that those accounts are produced by firms that are regulated to achieve this result: standards will be an important part of such a scheme.
  • How this interacts with accounting
    • The firms that want to be in the ALE scheme will have to meet its specification. This will include publishing on public  record data on:
      • Where the business is located;
      • Who owns the business;
      • Who directs the business;
      • What the business does, in sufficient detail that a customer can be sure about this;
      • An income statement that must include information on turnover (sales), number of employees and total pay but which would ideally also include all the information required by law in the income statement of a smaller company, including a tax note so that the company and the community that hosts it knows how much tax is paid by it;
      • A balance sheet and supporting notes that explains in plain English what the assets and liabilities of the company are, with little or nothing being hidden from view behind technical or vague terms that do not make clear to what they relate;