The year is drawing to a close and it’s time to get ready for filing annual reports. To ensure that the report is ready in time, we advise company management and accountants to coordinate the schedule for filing so that all parties are on the same page when it comes to deadlines.
Provided that the financial year runs from 1 January to 31 December 2015, annual reports would need to be filed to the Commercial Register by 30 June 2016.
Stages in preparing and filing annual reports
Preparing and filing the annual report covers the following activities:
- preparation of financial statements
- preparation of the management report
- approval of the annual report
- auditing (if required by law or desired by the management)
- in the case of companies, preparation of proposal to distribute profits or cover loss for the financial year
- presentation of the annual report for approval
What information does an accountant expect for preparing the annual report?
Prior to preparing the annual report, make sure the company’s net assets meet the requirements and are not in the red. If it turns out that equity is negative, possible solutions must be discussed promptly with the management.
The members of the company’s management board are obliged to prepare a management report as one part of the annual report. The management report provides an overview of the Company’s activity and circumstances that are of determining importance to evaluating the Company’s financial condition and economic activity, key events in the financial year and forecasted development trends in the next financial year.
What should be described in the management report?
- primary areas of activity, product and service groups
- the most important investments that have taken place during the financial year or are planned for the near future
- significant research and development projects and related expenditures during the reporting year and the subsequent years
- significant events taking place during the preparation of annual report that are not documented in the financial statements but have or may have a material impact on the results for the next financial years
The company being audited is also obliged to describe the following aspects:
- the general development of the accounting entity and its impact on the economic results
- the seasonality of the accounting entity’s business activity or cyclical nature of its economic activity
- significant environmental or social impacts related to the accounting entity’s activities
- risks related to currency exchange rate, interest rate or stock exchange rate changes in the financial year and the report preparation period
- the main financial ratios in the financial year concerned and previous financial year and methodology for calculating them
Balance confirmation letters should be issued to customers well ahead of time. The likelihood of receiving outstanding amounts should also be assessed. If necessary, the management board will have to prepare resolutions on recognising these claims as doubtful.
Assess the need to establish provisions – for example, guarantee, layoff compensation, bonuses for management board or employees for work done in the financial year, provisions for contracts deleterious for the company or with regard to court cases, etc. If there is a need to establish provisions, draw up a written management board decision to that effect.
Take inventory of goods in stock as at the balance sheet date or a date as close to the balance sheet date as possible, and draw up an inventory report.
Property, plant and equipment
Conduct the inventory of PPE as of the balance sheet date and draw up a PPE inventory report. Assess the use of the assets and if necessary, prepare a write-off instrument.
Off-balance-sheet assets and liabilities
It is important to notify the accountant of all potential assets/liabilities that should be disclosed in the report (judicial processes pending, compensation related to termination of contract with a management board member, etc)
Transactions with related parties
It is important for the accountant to possess information on all transactions conducted with all related persons/parties. Often, the term “related parties” causes confusion. The following are considered to be related parties:
- Executives and senior management and their close family members (spouse, partner, child) and companies which they control or have considerable influence on.
- Parent company. Persons who control or have considerable influence on the parent company.
- Individuals who have a material holding (unless these people have no way of exerting considerable influence on the company’s business decision). The close family members of such people or companies in which they control or have considerable influence on.
- Other companies belonging to the same consolidated group (e.g. the other subsidiaries of the same parent).
- Associated companies.
Events occurring after the balance sheet date
It is important to notify the accountant of all significant subsequent events occurring after the balance sheet date and having an influence on the information presented in the annual report .
- Litigations, disputes with customers/suppliers regarding material income and expenses, other potential liabilities emerging.
- Significant events that have major impact on the economic activity (such as merger and division plans, significant changes in loan and share capital, significant changes in the customer base etc).
- Significant fraud (including by employees) or legal offenses disclosed.
- Guarantees granted to secure obligations assumed by management, employees and other persons.
- Minutes of meetings of the supervisory board and meetings of shareholders/partners that resulted in significant resolutions.
If you have any questions about preparation and submission of annual reports, please contact Grant Thornton Baltic’s accounting department via email at email@example.com or by telephone 626 4500. We’ll be glad to help.