For accounting periods commencing on or after 1st January 2016, abbreviated accounts have been abolished for small companies and LLP’s.
This is due to the implementation of an EU Accounting directive that has required small companies and LLP’s to transition to a new Financial Reporting Standard.
One of the advantages for small companies and LLP’s of filing abbreviated accounts was they enabled less information to be available on public record at Companies House.
Unfortunately, the new changes mean that the accounts which are prepared for the members, must also be those which are filed at Companies House, with the exception that the profit and loss report and report of the directors can be removed. This raises the prospect that more information will be publicly available.
To combat this slightly, the Companies Act now allows for a small company or LLP to make changes to the accounts formats by preparing ‘abridged accounts’. They can either prepare an abridged profit and loss, an abridged balance sheet or both.
An abridged profit and loss starts with gross profit and loss and thus does not provide numbers for turnover, cost of sales or other income.
As mentioned above, the profit and loss is not filed at Companies House so at A4G we see no sense in preparing an abridged profit and loss. It only serves to hide crucial information for the members.
An abridged balance sheet need only include lines preceded by letters or Roman Numerals in the accounts formats and not items preceded by Arabic numbers. Subsequently, there is no breakdown of fixed assets between plant and machinery, motor vehicles, computer equipment etc. There is no breakdown of debtors between trade debtors, prepayments and so on. There is also no breakdown of creditors into trade creditors, accruals, taxation and bank loans etc.
Crucially there is no tax creditor is shown (as there is no breakdown of creditors due within one year). This is important because this figure could be used to estimate net profit which is highly sensitive and most small businesses will not want third parties having access to this or being able to predict it.
Based on the above, A4G strongly recommend that small companies and LLP’s prepare accounts with an abridged balance sheet.
We understand that some of the information omitted is useful for owner-managers and therefore to bridge the information gap, A4G will provide clients with a supporting management report free of charge which contains this information. Please note however that this does not make up part of the statutory accounts and is for information purposes only.
To prepare accounts with an abridged balance sheet, directors and LLP members must obtain consent. The consent must be obtained:
The above can be obtained by writing to the shareholders/members and asking them for their expressed consent to prepare accounts with an abridged balance sheet. This process must be undertaken each year.
The balance sheet will contain a statement that “All the members have consented to the preparation of an abridged Balance Sheet for the year ended DD MMM YY in accordance with Section 444(2A) of the Companies Act 2006.”
A signature on the balance sheet in the accounts will signify that the required consent has been obtained.
Please note that preparing abridged accounts without consent of 100% of the shareholders/members would mean that the accounts do not comply with the Companies Act. The directors/members could face a fine and/or prosecution and would be required to rectify the situation.