Statutory Accounts

Not all professional bodies train their members to produce statutory accounts. The title ‘accountant’ is not a protected name and can be used by anyone irrespective of their qualifications and experience. 

We are a member of the ICAEW, a professional membership organisation that promotes, develops and supports chartered accountants.

Yes. In the unlikely event that something goes wrong, all ICAEW partners are required to have professional indemnity insurance and we will be happy to advise our cover in more details with our clients.  

Finerva, as a member of ICAEW, is required to provide any incoming accountants with appropriate information to ensure a smooth handover between accountants. If your choice of accountant does not provide full information to a future new accountant then when changing accountants you may be charged an additional fee if they have difficulty in matching the figures in your accounting software to the financial statements. 

These are annual financial reports by directors to shareholders of the company showing the profit and loss for the financial period as well as the assets and liabilities of the company at the financial year-end. The size of the company or worldwide group may determine which accounting standards are used to prepare the statutory accounts.

All UK private limited companies, public limited companies and limited liability partnerships are required to submit Statutory Accounts to Companies House following the end of their financial year. They are also required to provide statutory accounts to their shareholders.

The directors have a legal responsibility to file the accounts for the company. The company and directors may incur legal action and fines for not filing accounts when they are due or in the correct format. Companies House could strike the company off the Companies House register. At this point, all assets of the Company including bank accounts become the possession of the Crown.

You have to file your Statutory Accounts with Companies House within 9 months after your company’s financial year ends. This may be different in the company’s first financial period or if the company changes its year-end.

Only micro accounts can be filed through Companies House. Frequently, we find that companies forget to file the corporation tax return at the same time or prepare the accounts on a cash basis rather than on an accruals basis as required under accounting standards.

Cash basis records only transactions that have been received or paid through the bank account. Companies are not permitted to use the cash basis of accounting. Accruals basis records income in the accounting period it is earned, even if not invoiced or paid for. Expenses are recorded in the period incurred even if the company has not received an invoice or paid for this expense.

1. Share options – The fair value of share options granted and vested to employees, contractors and legal advisors may be required to be included as an expense in accounts (see below).
2. Convertible loans – They may need to be recorded in the accounts differently from the legal agreements where the balance is split between equity and loans and interest is calculated at a market interest rate rather than the rate in the agreements.
3. Share subscriptions and preferred shares – these can either be recorded as loans or equity (depending on the agreements)

When is a share-based accounting adjustment required?

• When a company grants shares or share options in exchange for services or goods e.g. remunerating or rewarding employees or contractors for their services.
• When the fair value of total share options granted are material in value and any condition that will allow the share options to be exercised is likely.
• When share options are exercised or lapse.
• When a company is preparing its accounts in accordance with FRS 102 or FRS 102a.

What is share based accounting?

• An accounting adjustment to record a cost to the company for the services or goods received and paid for with shares or share options.
• This is shown as an expense in the profit and loss account and a corresponding increase in  equity in the Balance sheet.
• The increase in equity will be in share capital if shares are issued or in a designated “share based payment reserve” account if options are granted.
• When share options are exercised, their cost will be deducted from the share -based reserve.

How is the cost taken to the Profit and loss calculated?

• For non-employees this is based on the cost of goods and services agreed with the non-employees and usually supported by a contract and invoice from the non-employee.
• A valuation of the share options is required using an accepted valuation model. This value is not the same as any value agreed with HMRC for the market value of shares for EMI schemes.
• If there are vesting conditions attached to share options, then these may be recognised over a period of time depending on when vesting conditions are met.

How do we value share options?

• We first assess whether the fair value of share options granted are likely to be material and will confirm with the company the probability of any exit events.
• If the fair value of options is not likely to be material and/or an exit event is determined to be unlikely then no further work or accounting adjustments are required.
• However, if the fair value is material and exit event more likely than not then we will quote for that additional work required.
• Our quote is based on the expected time that will be spent on the valuations, including the number of valuations and cost per employee over the vesting period.
• Once the fee is agreed we will request the documentation and information required and complete the calculations and any agreed accounting adjustments.

The directors have a statutory responsibility to ensure that the company maintains accurate accounting records and to provide accurate financial statements to the company shareholders and other regulatory bodies.

The statutory accounts figures also form the basis of corporation tax returns. If the statutory accounts are incorrect then the corporation tax return may also be incorrect. The financial statements may also be requested by potential investors – whether you are fundraising or going through the due diligence during your Exit process.

A potential investor or buyer may walk away if they do not have confidence that the statutory accounts and records are accurate. Getting it right the first time won’t only save you some time in the future but also increase credibility and opportunities for higher value during your exit. Read more.

The titles of bookkeepers and accountants are not protected names and can be used by anyone irrespective of their qualifications and experience. Generally, bookkeepers will record everyday transactions whilst Accountants analyse a company’s books and provide an overview/summary of its financial health. Read more.