Checklist for preparing the annual report

As the year draws to a close, the reporting season begins. To ensure that your annual report is completed smoothly and on time, we have compiled the key steps and recommendations – what to prepare, when to act and which information your accountant will need.

Deadline and process for submitting the report

A financial year typically lasts 12 months (Accounting Act § 13), and companies have six months to submit the annual report. For example, if the financial year ends on 31 December 2025, the deadline for submitting the annual report is 30 June 2026.

Do not leave the preparation of the annual report to the last minute – the best time to start planning is now. Together with your accountant, set a realistic schedule so that all necessary actions, inventories and controls are completed on time. This ensures a calm reporting process and timely submission.

The preparation of an annual report usually includes the following steps:

• preparation of the financial statements, including reconciliation of balances, inventories, review of management assessments, etc.;
• preparation of the management report (where required);
• approval of the report by management;
• audit (if required by law or considered necessary by management);
• preparation of the proposal for profit distribution or loss coverage;
• submission of the report to the e-Business Register.

Requirements for the annual report

The requirements for the annual report depend on the size and category of the company. The Accounting Act classifies all accounting entities, regardless of legal form, into four groups: micro, small, medium-sized and large entities. Consolidation groups are similarly divided into small, medium and large. Based on these categories and the Estonian Financial Reporting Standards (see more in Accounting Standards Board Guideline 15), different requirements apply to the content of the annual report and the disclosures – the larger the entity, the more detailed the information that must be presented.

It is important to know that a company is reclassified into a new size category, and its reporting requirements change, only if it does not meet the criteria of its current category at two consecutive reporting dates (Accounting Act § 2 (6)). This ensures that reporting obligations change only when shifts are permanent, not temporary.

Company category and structure of the report

In accordance with § 3 of the Accounting Act, the structure of the annual report depends on the size of the undertaking.

* The four primary statements are: balance sheet, income statement, cash flow statement and statement of changes in equity.
** Sustainability reporting requirements are being phased in from 2024–2028, starting with large undertakings and public-interest entities and gradually extending to smaller financial and public-interest entities. See more in § 24 (2–6) and § 62 (18–21) of the Accounting Act.
*** A smaller entity may always choose to apply the requirements of a higher category.

What information does the accountant need to prepare the annual report?

The preparation of the annual report requires a thorough review of all asset and liability balances to ensure accuracy and fair valuation. This includes conducting inventories, analysing supporting documents and reassessing management estimates to ensure that the accounting data reflects the company’s actual financial situation.

Cash and bank accounts

On the balance sheet date, both cash and bank balances must be inventoried, and foreign currency balances revalued if necessary. If the entity is subject to an audit, bank confirmation letters should be requested in advance. Where a cash register is used, a physical cash count must be performed and documented.

Time deposits must also be assessed: deposits maturing within three months after the balance sheet date are classified as cash equivalents, while those with longer maturities must be recognised as financial investments.

Trade receivables

At year-end, it is advisable to send balance confirmations to customers to verify outstanding receivables and identify potential discrepancies. Based on the ageing analysis, management should assess the recoverability of receivables and determine whether impairment is needed. If certain receivables are unlikely to be collected, the management board must document a justified written decision.

Inventories

Inventories must be counted on the balance sheet date (or as close as possible) and documented in an inventory report. Obsolete or expired items must be written off, and impairment recognised for items whose carrying amount exceeds their net realisable value.

“Goods in transit” and "prepayments for inventories" must also be reviewed, considering delivery terms and supporting evidence. "Goods in transit" refers to situations where ownership has already transferred but the goods have not yet arrived. For prepayments, it is important to ensure that they have actually been paid; if necessary, the balance should be reconciled with the supplier. Management assessments regarding goods delivered near the reporting date must be documented.

Property, plant and equipment and intangible assets

All fixed assets must be inventoried and their usability assessed. Depreciation rates and useful lives must be reviewed for adequacy, and adjustments made where necessary. Assets that are damaged, outdated or no longer in use must be written off. If indicators of impairment exist, management must perform a recoverable amount test.

Financial investments

All transactions involving financial investments (e.g., deposits, shares, units, bonds, cryptoassets, precious metals) must be supported by documentation. Statements and valuation reports at the balance sheet date must be obtained. Management must prepare written assessments describing the reasons for valuation changes so that the accountant can record revaluations and impairments correctly.

Investments in subsidiaries and associates

Review the list of subsidiaries and associates and provide their annual reports to the accountant. For investments measured at cost, it is necessary to assess whether the carrying amount in the balance sheet still reflects the actual condition and value of the investment.

If the financial situation of a subsidiary or associate has changed, an impairment of the investment may be required. It is also important to ensure that all necessary information and reports are available to the accountant, especially if the company is part of a consolidation group.

If a subsidiary or associate has decided to distribute dividends before the balance sheet date, the corresponding decision must also be submitted to the accountant so that a dividend receivable can be recognised.

Investment property

Investment property must be assessed to ensure its fair value corresponds to market conditions. For assets measured at fair value, a valuation must be prepared or updated, and the assumptions and methodology disclosed in the annual report.

If the cost model is used, the asset must be reviewed similarly to fixed assets – assessing condition, use and useful life – and impairment tests performed where indicators arise.

Loans issued and received

Loan agreements must be valid, extended where necessary, and submitted to the accountant. Interest must be accrued according to contract terms and recognised in the appropriate reporting period. Loan balances must be confirmed with counterparties. Short- and long-term balances must be classified correctly in the balance sheet based on repayment schedules.

For issued loans, management must assess collectability and determine whether impairment is needed. For received loans, compliance with special conditions must be verified. Information on guarantees, collateral, sureties, the base currency of loans and interest terms must be compiled for disclosure.

Leases

All lease agreements must be reviewed and classified correctly as finance or operating leases under ASBG 9 “Lease accounting.” A finance lease transfers substantially all risks and rewards to the lessee. An operating lease leaves risks and rewards with the lessor.

Lessees must ensure that finance lease assets and liabilities are recognized properly in the balance sheet, and that the income statement reflects the corresponding depreciation and interest expenses, or lease expenses in the case of operating leases.  The lessor must recognise a receivable from the lessee in the case of a finance lease, while under an operating lease the asset remains on the lessor’s balance sheet and the lease income is recognised evenly over the lease term.

Liabilities and provisions

All outstanding liabilities must be reviewed to ensure completeness: trade payables, advances from customers, tax liabilities, accrued salaries and vacation reserves, and other obligations. Significant supplier balances should be confirmed. Advances from customers must be verified to ensure the payments were received before the balance sheet date and that they correspond to goods to be delivered or services to be provided in the future.

Tax liabilities must be reconciled with the Tax Board’s records, and salary-related accruals must match payroll documentation. Vacation reserves must reflect actual unused vacation days.

Provisions must be recognised for obligations with uncertain timing or amount, such as warranty provisions, severance payments, bonuses or legal disputes. The management board must issue a written decision with justification.

Foreign currency transactions and balances

Foreign currency transactions must be translated into euros using the exchange rate on the transaction date. Monetary assets and liabilities (e.g. cash, receivables, loans, payables) must be revalued at the balance sheet date exchange rate, with resulting gains or losses recognised in the income statement.

Non-monetary assets measured at fair value (e.g., investment property, biological assets, financial investments) must be translated using the exchange rate on the valuation date. Non-monetary assets measured at cost (e.g., inventories, prepayments, financial investments, tangible and intangible fixed assets) are not revalued at year-end – they remain recorded using the exchange rate on the transaction date.

Government grants and targeted financing

If the entity has received grants or project-based funding, related agreements and decisions must be submitted to the accountant along with explanations of their use and conditions. It must be assessed whether grant conditions have been fulfilled by the reporting date, which determines whether income is recognised in the current period or deferred.

Equity

Before preparing the annual report, it is essential to verify that the company’s equity complies with the requirements set out in the Commercial Code and is not negative. If equity falls below the level required by law, the management board must explain in the management report how they plan to restore equity.

It is also important to review all movements in equity: contributions and distributions, allocated profit (including dividends to be distributed and mandatory reserve transfers), treasury shares acquired or pledged, and similar transactions. In addition, it must be ensured that the accounting treatment of these transactions corresponds to the underlying source documents.

A written decision by the shareholders approving the previous year’s annual report must also be in place.

Revenue and expense accrual

When preparing the annual report, the matching principle must be applied, meaning that expenses are recognised in the same period as the revenues they help to generate. This means that sales revenue and the related cost of goods sold must correspond – revenue is recognised when the goods or services have been transferred to the customer and the related risks and rewards have passed.

For the sale of goods, the timing of revenue recognition often depends on delivery terms, which determine when ownership and risks transfer from the seller to the buyer. If the transfer of ownership occurs only after the balance sheet date, neither the sales revenue nor the cost of goods sold may be recognised in the reporting period. 

Contingent assets and liabilities

The accountant must be informed of all potential assets and obligations that are not recognised in the balance sheet but must be disclosed in the annual report. Such situations may include, for example, ongoing legal disputes, guarantee agreements, compensation obligations arising from the termination of management board members’ employment contracts, or other contractual commitments whose realisation depends on future events.

Related-party transactions

Because the notes to the annual report must disclose information about related parties and transactions with them, it is important during the preparation process to identify all related parties – individuals or entities that are connected to the reporting company in such a way that transactions between them may not occur on market terms. Accordingly, the accountant should be provided with a list of related parties and an overview of all transactions and balances with them, including loans, sales, purchases, receivables, liabilities, remuneration and similar items.

Events after the balance sheet date

It is important to inform the accountant of all significant events occurring after the balance sheet date that may affect the information presented in the annual report or that require additional disclosure. Such events may include, for example, significant non-routine transactions, major loan arrangements, legal disputes, disagreements with customers or suppliers concerning material revenues or expenses, merger or division plans, significant instances of fraud or legal violations, and minutes of supervisory board or shareholders’/owners’ meetings containing important decisions.

Management report

The management report forms an integral part of the annual report, providing a comprehensive overview of the company’s activities, financial results and key developments. Preparing the management report is the responsibility of management, not the accountant.

The management report must include at least:

• main areas of activity and product and service groups;
• management and organisational structure, including foreign branches;
• major investments made during the year and planned for the near future;
• R&D projects and related expenses;
• significant events during the reporting period and after the balance sheet date that may affect future results.

If the report is audited, it must also describe:

• the impact of general economic trends, seasonality and market cycles;
• significant environmental and social impacts;
• financial risks and risk-management principles;
• key financial ratios and their calculation methods.

Large companies and public-interest entities must additionally disclose:

• intangible resources (e.g. knowledge, technology, trademarks) and their role in value creation;
• diversity policies in management and their outcomes.

Entities required to prepare a sustainability report must present their environmental, social and governance impacts in accordance with European Sustainability Reporting Standards (ESRS).

The complete list of minimum information required in the management report is provided in § 24 of the Accounting Act.