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Mind Map by neha Gowry, updated more than 1 year ago
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Published Accounts of Limited Companies
- Published Accounts
- Every limited Company whether public or private, is required by law to produce
financial statements each year, which are also available for anyone to inspect
if they so wish.
- Statutory Accounts
- Those which are required to be produced under company law, and a copy
of these is filed with the Register of Companies (Public companies are
required to file their accounts within 6 Months of the end of their financial
year)
- Those which are required to be produced under company law, and a copy
of these is filed with the Register of Companies (Public companies are
required to file their accounts within 6 Months of the end of their financial
year)
- Annual Report and accounts
- Available to every shareholder and contains the main elements
of published accounts: • Income statement • Balance sheet
• Cash flow statement • Statement of changes in equity • Notes to
the financial statements, including a statement of the company’s
accounting policies • Directors’ report • Auditors’ report
- Available to every shareholder and contains the main elements
of published accounts: • Income statement • Balance sheet
• Cash flow statement • Statement of changes in equity • Notes to
the financial statements, including a statement of the company’s
accounting policies • Directors’ report • Auditors’ report
- Every limited Company whether public or private, is required by law to produce
financial statements each year, which are also available for anyone to inspect
if they so wish.
- Responsibilities of Directors
- Directors general duty under the Companies Act 2006: • Act within their powers (normally
derived from the company’s constitution, E.g. the Articles of Association) • Promote the
success of the company • Exercise independent judgement • Exercise reasonable care, skill
and diligence • Avoid conflicts of interest • Not accept benefits from third parties • Disclose an
interest in any proposed transactions involving the company
- Main Provisions of the Acts are that:
- A company’s accounting records must: • Show and
explain the companies transactions • Disclose with
reasonable accuracy at the time the financial position of
the company • Enable the directors to ensure that the
company’s income statement and balance sheet give a
true and fair view of the company’s financial position
- True – means if any of the financial statements state
that a transaction has taken place then, in reality, it
has taken place; likewise, if an asset is shown on the
balance sheet, then the asset actually exists
- Fair – implies that transactions and
assets are shown using generally
accepted accounting rules and principles
- True – means if any of the financial statements state
that a transaction has taken place then, in reality, it
has taken place; likewise, if an asset is shown on the
balance sheet, then the asset actually exists
- A company’s accounting records must contain: • Day-to-day
entries of money received and paid, together with details of the
transactions • A record of the company’s assets and liabilities
• Details of inventories held at the end of the year
- A company’s financial statements must be prepare according with the Companies Acts and
with either UK accounting standards or International Accounting standards; additionally, the
companies listed on the stock exchange must comply with regulations of the stock exchange
- The director must report annually to the shareholders on the way
that they have run the company on behalf of the shareholders
- A company’s accounting records must: • Show and
explain the companies transactions • Disclose with
reasonable accuracy at the time the financial position of
the company • Enable the directors to ensure that the
company’s income statement and balance sheet give a
true and fair view of the company’s financial position
- Preparing the financial statements, which are then audited by
external auditors, appointed by the shareholders of the company
- Ensure statutory accounts are produced and filed with the Registrar of
Companies, for public inspection. Annual accounts must be approved by the
company's board of Directors and a copy of the Balance sheet filed with the
Registrar of Companies must be sign by one of the directors on behalf of the
board. Directors much prepare a Directors' Report, this must be approved
by the board and the copy to be filed with the Registrar of Companies must
be signed on behalf of the board by a director (or the company secretary)
- Directors general duty under the Companies Act 2006: • Act within their powers (normally
derived from the company’s constitution, E.g. the Articles of Association) • Promote the
success of the company • Exercise independent judgement • Exercise reasonable care, skill
and diligence • Avoid conflicts of interest • Not accept benefits from third parties • Disclose an
interest in any proposed transactions involving the company
- Income Statements
- Certain items such as Revenue, Financial Costs and Tax Expense must be detailed on the face of the income
statement
- Expenses must be analysed either by nature (raw materials, employee
costs, Depreciation, etc) or by function (cost of sales, distribution expenses,
sales and marketing expenses, administrative expenses, etc) - depending
on which provided the more reliable and relevant information. The
analysis by nature is often appropriate for manufacturing companies,
while the analysis by function is commonly used by trading companies.
- Distribution expenses:
- • Warehouse costs • Post and
packaging • Delivery drivers’ wages
• Running costs of delivery vehicles
• Depreciation of delivery vehicles • Etc.
- • Warehouse costs • Post and
packaging • Delivery drivers’ wages
• Running costs of delivery vehicles
• Depreciation of delivery vehicles • Etc.
- Sales and marketing expenses
- • Advertising costs • The salaries of sales
people • The running costs of sales
people’s cars • The cost of sales
promotions • Etc.
- • Advertising costs • The salaries of sales
people • The running costs of sales
people’s cars • The cost of sales
promotions • Etc.
- Administrative Expenses
- • Office costs • Rent and rates • Heating and lighting
• Depreciation of office equipment • Etc.
- • Office costs • Rent and rates • Heating and lighting
• Depreciation of office equipment • Etc.
- Certain items such as Revenue, Financial Costs and Tax Expense must be detailed on the face of the income
statement
- Statement of Changes in Equity
- One of the financial statements
- Shows the changes that have taken place to
the shareholders' stake in the company - not
only the realised profit or loss from the income
statement, but also unrealised profits (such as
the gain on the upwards revaluation of
property) which are taken directly to reserves
- One of the financial statements
- Balance Sheet
- These have to be shown in the Balance Sheet:
- • Property, Plant and Equipment • Investment Property
• Intangible Assets • Inventories • Trade and other
Receivables • Cash & Cash Equivalents • Trade and other
Payables • Tax Liabilities • Issued Capital and Reserves
- Further details can be on the face of the balance sheet or in notes
- Further details can be on the face of the balance sheet or in notes
- • Property, Plant and Equipment • Investment Property
• Intangible Assets • Inventories • Trade and other
Receivables • Cash & Cash Equivalents • Trade and other
Payables • Tax Liabilities • Issued Capital and Reserves
- Current Assets include:
- • Cash or Cash Equivalent • Those to be realised, sold or used within the normal operating cycle
• Assets held for trading and expected to be realised within 12 months (The only current assets
are, trade receivables, inventories and cash and Cash Equivalents)
- • Cash or Cash Equivalent • Those to be realised, sold or used within the normal operating cycle
• Assets held for trading and expected to be realised within 12 months (The only current assets
are, trade receivables, inventories and cash and Cash Equivalents)
- Current Liabilities
- • Those expected to be settled within the normal operating cycle • Liabilities held for
trading and expected to be settled within 12 months • Where the company does not have
the right to defer payment beyond 12 months (The only current liabilities are, trade
payables, tax liabilities and bank overdraft)
- • Those expected to be settled within the normal operating cycle • Liabilities held for
trading and expected to be settled within 12 months • Where the company does not have
the right to defer payment beyond 12 months (The only current liabilities are, trade
payables, tax liabilities and bank overdraft)
- Share Capital
- The following are required to be disclosed
on face of Balance Sheet or in Notes
- • Number of shares authorised
• Number of shares issued and fully
paid, and issued but not fully paid
• Par (or nominal) value
- • Number of shares authorised
• Number of shares issued and fully
paid, and issued but not fully paid
• Par (or nominal) value
- The following are required to be disclosed
on face of Balance Sheet or in Notes
- These have to be shown in the Balance Sheet:
- Dealing with Dividends in the Financial Statements
- Dividends is a payment to the shareholders of the company as a return on their
investment
- Paid twice a year, Interim dividend, which is paid just
over half way through the financial year, and final
dividend, which is paid early in the next financial year
- Interim dividend is based on the profits reported by the company during the first half of the year, while the final dividends is based on the profits reported for
the full year
- Final dividends is proposed by the Directors but it
then has to be approved by shareholders at the
annual General Meeting (AGM) of the company.
- This process is finalised during the next financial
year thus it is recorded not in the previous year
but recorded in this year's financial statement
- This process is finalised during the next financial
year thus it is recorded not in the previous year
but recorded in this year's financial statement
- Interim dividend is based on the profits reported by the company during the first half of the year, while the final dividends is based on the profits reported for
the full year
- Dividends is a payment to the shareholders of the company as a return on their
investment
- Directors' Report
- Includes: • The principle activities of the company • A review of the activities of the company over the past year • Likely
developments that will affect the company in the future, including research and development activity • Directors’ names and
their shareholdings in the company • Proposed dividends • Any significant differences between the book value and market
value of land and buildings • Political and charitable contributions • Actions taken on employee involvement and consultation
• The companies policies on: 1) Employment of disabled people 2) Health and Safety at the work of employees 3) Payment of
suppliers
- Includes: • The principle activities of the company • A review of the activities of the company over the past year • Likely
developments that will affect the company in the future, including research and development activity • Directors’ names and
their shareholdings in the company • Proposed dividends • Any significant differences between the book value and market
value of land and buildings • Political and charitable contributions • Actions taken on employee involvement and consultation
• The companies policies on: 1) Employment of disabled people 2) Health and Safety at the work of employees 3) Payment of
suppliers
- Cash Flow Statements
- Required to be included as part of the financial statements
- Shows an overall view of
money flowing in and out during
the accounting period
- Shows an overall view of
money flowing in and out during
the accounting period
- Required to be included as part of the financial statements
- Auditors' Report
- After the Directors have prepared the
published accounts, the accounts must then
be audited by external auditors appointed by
the shareholders to check the accounts.
- Printed in the published accounts
- 3 main sections of the Auditors' report
- Respective Responsibilities of Directors and Auditors - The report
states that directors are responsible for preparing the accounts, while
the auditors are responsible for forming an opinion on the accounts
- Basic of Audit Options - the way in which the audit
was conducted, other assessments, and the way in
which the audit was planned and performed
- Opinion - the auditors' view of the company's accounts
- The Opinion is ‘unqualified’ if the auditors are of the opinion that: • The
financial statements have been prepared properly, and • They give a
true and fair view of the company’s affairs in accordance with the
company law and international financial reporting standards (IFRS), as
adopted by the European Union, and • The information given in the
directors’ report is consistent with the financial statements
- The Opinion is ‘unqualified’ if the auditors are of the opinion that: • The
financial statements have been prepared properly, and • They give a
true and fair view of the company’s affairs in accordance with the
company law and international financial reporting standards (IFRS), as
adopted by the European Union, and • The information given in the
directors’ report is consistent with the financial statements
- Respective Responsibilities of Directors and Auditors - The report
states that directors are responsible for preparing the accounts, while
the auditors are responsible for forming an opinion on the accounts
- After the Directors have prepared the
published accounts, the accounts must then
be audited by external auditors appointed by
the shareholders to check the accounts.
- Accounting Policies
- Specific accounting methods selected by
the directors and followed by the company.
E.g. Method of Depreciation
- If there's a IAS and IFRS then that policy must
be applied, but if there is not then the managers
of the company must use their judgement to
provide information that is relevant and reliable
- Once adopted by a company, accounting
policies are to be applied consistently for
similar transactions - unless an accounting
standard allows differing policies to be applied
to categories of items
- Changes of accounting policies can only occur if the change is required
by an accounting standard or if the change in results in the financial
statements providing reliable and more relevant information
- Changes of accounting policies can only occur if the change is required
by an accounting standard or if the change in results in the financial
statements providing reliable and more relevant information
- When there are changes in accounting
policies, they are to be applied
retrospectively. Any changes require the
figure for equity and other figures from the
income statement and balance sheet to be
altered for previous financial statements
- Important to the user of published accounts as they enable the user
to: • Understand the accounts • Rely on the accounts as being free
from bias • Make comparisons with different companies • Make
reliable decisions based on the information given
- Specific accounting methods selected by
the directors and followed by the company.
E.g. Method of Depreciation
- Notes to the Financial Statements
- IAS 1 requires notes to the financial statements.
They provide detailed information regarding: • The
basis of preparation used in the financial
statements and the specific accounting policies
used • Information required by international
accounting standards that is not already included in
the financial statements • Any additional information
that is relevant to the understanding of the financial
statements
- IAS 1 requires notes to the financial statements.
They provide detailed information regarding: • The
basis of preparation used in the financial
statements and the specific accounting policies
used • Information required by international
accounting standards that is not already included in
the financial statements • Any additional information
that is relevant to the understanding of the financial
statements
- Published Accounts and Internal Use Accounts
- Regulatory framework of accounting - containing the Company Acts and IAS's - that sets
out the requirements for published accounts. The regulatory framework details the financial
statements that are to be produced - E.g. Income Statements are in the same format,
Balance Sheet use the same headings, notes to the accounts give the same level of
information.
- This allowing comparison between 2 or
more companies, even if they are from
different sorts of business, to be compared
- This allowing comparison between 2 or
more companies, even if they are from
different sorts of business, to be compared
- Internal use company accounts are not subject to regulation and do not need to
be audited. They are only for internal use of the company's directors and
managers. This means it can be presented in a form that suits the users - both
in the format of the financial statements and also the level of detail provided
- Limitations of Published Accounts
- Published accounts are produced annually - the fortunes of the
company could change quite considerably within such a time period
- Public companies must file their statutory accounts with the Registrar of
Companies within 6 moniths of the financial year end - this means that, by the time
the information is available to users of the accounts, the accounts are out-of-date
- The regulatory framework for accounting details the
requirements for published accounts - invariably companies
will not disclose additional information
- Published accounts report on what has gone on in the past and give little
indication of what will happen in the future - E.g. changing markets of the state of
the economy which could impact on the performance of the business in the future
- Published accounts cannot record aspects of the company which affect
future performance - E.g. Quality of management, motivation of the
workforce, product life cycles, enviromental input, ethical considerations
- Published accounts are produced annually - the fortunes of the
company could change quite considerably within such a time period
- Regulatory framework of accounting - containing the Company Acts and IAS's - that sets
out the requirements for published accounts. The regulatory framework details the financial
statements that are to be produced - E.g. Income Statements are in the same format,
Balance Sheet use the same headings, notes to the accounts give the same level of
information.
- The Corporate Report: User Groups
- People interested in the Corporate Reports:
• Shareholders • Loan stock holders/debenture holders
• Creditors (Trade Payables) • Managers and employees
- More Info on this in text book PAGE 130
- More Info on this in text book PAGE 130
- Other users groups interested in the reports and accounts of companies: • The government and
Government Agencies – Interested in the TAX and VAT due • The Public – Interested in the
contribution of the company to the economy • Stock Market Analysts – Interested in the investment
potential within the company, and whether the company’s share can be recommended to their
investor clients • Pressure Groups, such as environmentalists – Interested in the company’s stance
on social and environmental issues
- People interested in the Corporate Reports:
• Shareholders • Loan stock holders/debenture holders
• Creditors (Trade Payables) • Managers and employees
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