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What are Statutory Accounts | Everything you need to know
Statutory accounts are an important part of running a business. They are essentially reports that show the financial performance of a business over a period of time; typically 12 months.
They are used by investors, lenders and other stakeholders to make decisions about the future of a business. They also need to be filed with regulatory bodies on a periodic basis.
In this blog post, we’ll discuss what statutory accounts are, why they’re important and how to read and interpret them.
What are Statutory Accounts?
Statutory accounts are a set of financial statements that reflect the performance and financial position of an organization over a given period of time. Commonly referred to as statutory accounts (but also known as ‘annual accounts’ or ‘company accounts’), these documents are prepared in accordance with generally accepted accounting principles (GAAP) in the context of applicable statutory regulations.
In other words, your business will need to submit a set of accounts each year to regulatory bodies such as HMRC and Companies House.
Statutory accounts provide stakeholders, including business owners, shareholders, lenders, and regulators, with insight into the organization’s financial health and performance.
They contain essential information such as company assets, liabilities, profits, losses, and cash flow.
This information helps users to make informed decisions and understand any risks associated with the organization. Statutory accounts are typically produced annually and include a profit and loss, balance sheet, and company notes.
In some cases, such as a micro-entity, companies can file a simplified version of a balance sheet.
As your accounts need to be filed with regulatory bodies it is important to ensure accuracy and compliance, sometimes this means having a qualified external body look after your books.
Not only does this provide more reliable financial information, but also reduces the chances of submitting errors on your returns; which in turn, could land you with penalties or incorrect tax liabilities.
What is Included in Statutory Accounts?
Statutory accounts must include a variety of financial documents and accompanying notes. To be exact, a set of annual accounts must include the following:
- Profit and loss
- Balance sheet
- Notes about the accounts
- A directors report (unless you’re a micro-entity)
Depending on the size of your company, you may also have to include a auditor’s report.
Once these reports have been produced, they must include the name of, and be signed by, one of the company’s directors.
Both the profit & loss and the balance sheet will provide key insights into the company’s financial position and performance, such as financial assets and any liabilities that are yet to be paid.
Profit & Loss
A profit and loss statement is a type of financial statement that shows the costs, expenses, and revenue of a company in a simplified format. This document is typically produced on a quarterly or annual basis.
A profit and loss (or P&L) helps present the financial position of the company in question at a quick glance, whilst still providing enough information to understand the company’s ability or inability to generate profit.
Investors, stakeholders, and other interested parties will often use a profit and loss statement to analyse the financial health of the company.
The profit and loss account of a company will show changes to the company throughout the financial period, as opposed to the balance sheet; which only shows data from a single point in time.
A P&L can also be prepared in two different ways, the cash method, and the accrual method. Which one is produced for your annual accounts will depend on the nature of your business and how it operates.
A few examples of entries in this statement would be as follows:
- The sales of the company
- Sale of assets
- Cost of goods sold
- Administrative expenses
- Operating costs.
Balance Sheet
A balance sheet is a financial statement that shows a snapshot of a company’s financial position over a given period of time.
This snapshot typically shows what the ompany owns and what it owes.
Balance sheets are often used by investors and shareholders when evaluating the value and financial health of a business.
In a balance sheet you will often see information about the company’s assets, liabilities and shareholder equity. This financial statement should also always balance when completed.
The company assets included can be fixed assets, intangible assets, or long-term investments. Where as the liabilities will include any interest payable, long-term debt, divididends payable and more.
The Purpose of Annual Accounts
Statutory accounts are a set of legally required documents that provide an overview of a company’s financial performance over the course of a given period.
They are an important tool for assessing a company’s financial health, as they provide insight into the company’s financial position, including its assets and liabilities.
Statutory accounts also include information on a company’s income and expenses, capital structure and performance of key activities.
Companies are obligated to file their statutory accounts to their local business registry, as well as to shareholders, so they can make informed decisions about the company’s financial position and performance.
As such, statutory accounts are a key component of the overall financial strategy of a business. They can provide a comprehensive look at the financial activities of a company and the figures to support the statements on the accounts are subject to a rigorous audit process to ensure accuracy and integrity when produced by an external auditor, such as an experienced accountant.
The information can also be used not just by stakeholders but also company directors to make more informed decisions about the future of the company.
How to Prepare For Your Year-End Accounts
Review your records to ensure that all transactions are accurately recorded for the purpose of producing statutory accounts.
Keeping accurate records is important for any business, but it is especially essential when creating statutory accounts.
This is because the accuracy of your accounts will be checked during submission, and any discrepancies may result in financial penalties. To ensure accuracy, it is important to document every transaction and keep them organized into categories, such as revenue, expenses, and assets.
Doing so will help make it easier to produce accurate statutory accounts and ensure they are compliant with statutory regulations.
Failure to comply with these regulations can leave a business exposed to penalties or even prosecution. It is therefore essential to ensure that all transactions are properly recorded and that all statutory accounts are filed on time and in accordance with relevant regulations.
Taking the time to consult a professional and make sure that your financial statements are compliant with regulations will give you; as a business owner, peace of mind.
Consulting a professional, such as a limited company accountant, can also help you improve the financial efficiency of your business; in addition to reducing tax liability where possible.
What's Included In Annual Accounts?
While the exact requirements for statutory accounts vary between companies depending on the nature of the business and how it operates, there are some that are generally applicable.
These include assets, liabilities, equity, revenue, expenses, and net income.
Revenue represents the money brought in by a company through its daily operations whereas expenses represent the money spent on running the busines such as staff wages or administrative fees.
When Do Your Annual Accounts Need to be Filed With Companies House
Statutory accounts are the official financial statements of a company, which need to be filed with Companies House each year. These accounts must be filed within 9 months of the company’s year end, otherwise the company may face penalties.
The date of the company’s year end can be found on the Companies House website. It is important to be aware of when the statutory accounts need to be filed, as this will help ensure the company remains compliant with Companies House regulations.
The company’s accounting period can be extended by up to 6 months if necessary, but the company must apply for this to Companies House before the end of the accounting period.
Who needs to complete statutory accounts?
Statutory accounts must be completed by all companies that are incorporated in the United Kingdom, regardless of size or turnover.
The company’s directors are responsible for the preparation of the statutory accounts, which must be approved by shareholders at the annual general meeting.
This set of accounts must then be submitted to Companies House and other relevant authorities. To ensure accuracy and reliability, the accounts should be reviewed regularly by both the company directors and the external auditors; such as an accountant.
What happens if you miss the deadline for filing your statutory accounts?
If you miss the deadline for filing your statutory accounts, the consequences can be severe if left unresolved.
Depending on the penalties a company may be facing, fines or even criminal sanctions for failing to file their accounts on time can be issued.
Furthermore, if the company has not filed its accounts for two years or more the company could be declared insolvent and struck off the Companies House registrar.
This means that it ceases to exist as a legal entity.
Therefore, it is essential that companies adhere to the deadlines for submitting their statutory accounts in order to protect themselves and their company.