Abridged accounts

What are abridged accounts?

Abridged accounts are simplified form of accounts that includes a full accounting period but unlike annual accounts do not contain detailed financial information.

Current rules give small businesses the opportunity to hide detailed financial information that is usually included in profit and loss – income statement and balance sheet – statement of financial position.

As all companies at the end of the financial year are required to submit statutory accounts, small companies have the option of presenting shortened versions of accounts. Abridged accounts somehow replaced the previous version of simplified accounts – abbreviated accounts.

Abridged accounts can be presented in a number of different scenarios, for example, when a company wants to present a summary of their finances or support an initial proposal for funding.

What information is included in abridged accounts?

If you do not want to indicate what the net profit of your company is, you need to file abridged accounts. Abridged accounts disclose less information than full accounts as they exclude a breakdown of balance sheet items.

If accounts are abridged, they will be identified as such. A statement should be included that says something like, “members have consented to the abridgement of these accounts”.

All types of accounts, (micro-entity accounts, abridged accounts or full accounts) must file at least the balance sheet and any related notes. Abridged accounts must contain a simpler balance sheet and any accompanying notes. The balance sheet has to have the name of the director printed on it, along with their signature. A company may also choose to include a simplifier profit and loss account along with a copy of the director’s report.

However, unlike full accounts, abridged accounts are not required to include a breakdown of fixed assets, debtors and creditors. As there isn’t a breakdown of creditors, the account’s corporation tax figure is not disclosed. Therefore, it’s not possible to estimate the net profit of a company using abridged accounts.

It’s also possible for abridged accounts to be filleted. What this means is that the director’s report and the profit and loss report can be removed from the Companies House version if the company’s accounts. In this filleted version of accounts, Companies House will then only receive a balance sheet with reduced account disclosures and it won’t have profit and loss pages.

Regulations

The main regulations on abridged accounts are contained in Accounting Directive – an EU directive whose main task is to regulate the disclosure aspects of small companies.

In orders of EU Accounting Directive abridged accounts can be used by certain entities qualified as small companies. The main intention of this solution is to ensure the secrecy of finances.

In the United Kingdom and Republic of Ireland regulations of abridged accounts are included in The Financial Reporting Standard.

Small companies

According to United Kingdom company law small companies are those that meet at least two of the following conditions:

  • net worth does not exceed 5.1 million £,
  • turnover does not exceed 10.2 million £,
  • the average number of employees does not exceed 50.

Small enterprises are also defined in the EU recommendation (2003/361). According to Definition of micro, small and medium-sized enterprises adopted by the commission – article 2 small enterprisee is an: “enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million”.

Requirements where abridged accounts delivered

To be able to filed an abridged account, the following conditions must be met:

  • the company must be an entity that qualifies as a small enterprise,
  • the exclusion of information must be unanimously agreed by shareholders,
  • the accounts must still meet the conditions to give a fair and true view.

Main advantage and disadvantages of abridged accounts

The main advantages are:

  • Abridged accounts reduce the disclosure of financial information about the company that might be useful to competitors. This helps the company if it has activities in competitive markets rather than a niche market.
  • It is an opportunity for small businesses to protect secrecy by shortening their profit and loss, balance sheet or both.

The main disadvantages are:

  • Users of the financial statements may think the company has something to hide.
  • Users will find inter-company comparison is difficult, as fewer figures are available for analysis.
  • Small companies have to prepare and submit the same set of accounts for its members as they do for the public record.
  • Agreement of shareholers must be obtained every year, so a continuing authority is not permitted.

Leave a Reply

Your email address will not be published.