SME’s – What are your Statutory Accounts?
For Small to medium sized businesses, and some individuals, your accountant prepares for you, usually on an annual basis, accounts for submission to relevant authorities such as Companies House and H M Revenue & Customs, you may in some cases provide these accounts to your bank for review on your liabilities such as a long or short term loan.
Limited companies are required to submit their accounts to Companies House atleast once a year as a statutory requirement.
Accounts of limited companies also need to be submitted to H M Revenue & Customs along with a Corporation Tax Computation and a Company Tax Return, also known as a form CT600.
Individuals are not required to submit their accounts to any relevant authorities, however the figures attained from the accounts are required to complete their Self Assessment Tax Return for submission to H M Revenue & Customs.
Most of the above is done once the accounts have been finalised with you, the client, and all issues have been resolved or carried forward for the following financial year.
When you receive your accounts from your accountant, you are usually faced with a fancy front cover, with the accountant’s logo and maybe their motto and some basic contact details. This is not necessary as a statutory requirement or a requirement by H M Revenue & Customs, however it is very convenient for the accountant to promote their firm to the reader as it is the very first thing they see.
After the first few fancy pages, there is a Company Information page that states the list of directors, list of company secretaries, The contact details of the accountants, the contact details of the solicitors (if any), the contact details of the bankers of the company, the registered office and the incorporation number.
Then there is the first page that is a statutory requirement by Companies House, as per the Companies Act, it is the Director’s Report.
The Director’s Report is where the statutory non-financial information is portrayed, in most small to medium sized businesses this includes the year end of the particular accounting period, the main activities of the business, a list of the directors that have served during the year, if any have been appointed or resigned during the year, they must be included and the relevant dates stated beside their names.
Also, the director’s report states that it has been compiled in accordance with the Companies Act for small companies, this is only in the case of small to medium entities (SME’s), otherwise this note is altered to incorporate the criteria of the company.
The report is then dated and should be signed by the director.
Following the director’s report there is an accountants report. As there are different qualifications in the accounting industry, these reports differ to each institution the accountant is a member of. In most cases there will be an ‘Accountants Report’ or a ‘Chartered Accountants Report’.
You are then faced with either the Profit & Loss Account or the Balance Sheet for the year, it is not necessary to have them in any particular order.
The Profit & Loss Account is the statement that portrays the income and expenditure for the period, deducting the expenses from the income results in the Net Profit.
The Balance Sheet is the total Assets and total Liabilities to date that have remained in the business since the incorporation date.
As with the director’s report, the Balance Sheet must also be signed by the director.
I am acquainted with a very experienced FCCA who has a proverb that “if the Balance Sheet balances and all the figures are correct and allocated appropriately, then the Profit & Loss Account will follow suit and, no doubt, will be correct”.
In both financial statements, there must be comparatives for the previous year. In the case of a new company, this is obviously not required and the fact that it is a new incorporation is stated in the director’s report.
As most of the figures in both the Profit & Loss and the Balance Sheet have aggregated totals, there is further elaboration on certain figures that are available in the following few pages which are called the Notes to the Accounts. In this section there are certain disclosures that are required per the Companies Act that are done by way of note including the elaborated totals in the financial statements.
There is then a Schedule of Profit & Loss Account which is the breakdown of the items listed in the main Profit & Loss Account. This is usually used for management purposes and is not required by the Companies Act. However, H M Revenue & Customs tend to require a breakdown of the total figures, including the comparative, in the Profit & Loss Account and the Schedule of Profit & Loss Account is an acceptable way to portray this to them.
In some cases, your accountant might also include a Corporation Tax Computation at the end to accompany the statutory accounts.
Let me know if you think your accounts have any omissions that you would like elaboration on before you ask your accountant, usually your accountant will not discuss this with you as, as a director you should be aware of most of the above already.
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