Once you have set up a company there are a number of ongoing filing obligations that you are required by law to complete at certain times. One of the most important and commonly known sets of documents is the company accounts.
The annual accounts are the product of accurate and efficient record-keeping within your company. In the UK, companies are required to file their accounts once a year for their accounting period. The accounting period differs between each company, and therefore does not necessarily follow a calendar year. The first financial year begins on the date of incorporation. Subsequent financial years follow in a continuing sequence from the day after the end of the previous financial year.
Unlike with day to day record-keeping (or book-keeping), there is a specific format required for keeping annual accounts. Companies can choose to prepare their accounts following either the Companies Act 2006, or alternatively the International Accounting Standards (IAS). However, it should be noted that UK companies following IAS are still regulated by the Companies Act, and accounts must therefore meet all requirements outlined here also.
The company accounts allow for an accurate assessment of the company’s financial position at a given time. Accounts are made up of financial statements. The statutory accounts following Companies Act are profit and loss accounts, and the balance sheet. However, there are wider accounting standards that companies need to follow too, meaning non-statutory accounts are commonly produced.
The accounts must be accompanied by a number of reports, namely the directors’ report and the auditor’s report (where applicable). The directors’ reports outlines the financial position of the company, and its potential. The auditor’s report states whether the annual accounts have been compiled in the correct manner, and is a compulsory part of the process of annual accounting for larger corporations. These reports help to increase transparency for the shareholders, informing their decisions.
There five general principles that should guide the production of annual accounts and financial statements:
1. True and fair view: the accounts must show a “true and fair view” of the company’s financial position.
2. Going concern: accounts are usually prepared with the assumption the business will continue to operate.
3. Consistency: methods and policies for preparing statements should remain consistent year-on-year.
4. Prudence: the company must be prudent when deciding the amount to record items included in financial statements.
5. Accruals basis: receipts and expenditure should normally be accounted for when they are earned or accrued.
If you have any questions with regards to annual accounts following your company registration, please feel free to contact us on 0844 893 0808.
