- True and fair view: the accounts must show a “true and fair view” of the company’s financial position.
- Going concern: accounts are usually prepared on the assumption the business will continue to operate.
- Consistency: methods and policies for preparing statements should remain consistent year-on-year.
- Prudence: the company must be prudent when deciding the amount to record items included in financial statements.
- Accruals basis: receipts and expenditure should normally be accounted for when they are earned or accrued.
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Accountants are required to prepare annual accounts for private limited companies at the end of each financial year. This article will describe the accountancy services that they will provide to new company formations. A financial year varies from company to company and is not necessarily a calendar year (January to December) or a tax year (April to March). A company’s first financial year begins with its date of incorporation. Each subsequent financial year begins with the day immediately following the end of the previous financial year. The format and content of a company’s year-end accounts is underpinned by an extensive regulatory framework. Although most chartered accountants prepare their accounts under the terms of the Companies Act 2006 (known as “Companies Act accounts”) they can choose to prepare them under international accounting standards instead (known as “IAS accounts”). It should be noted however that accountancy services preparing their financial statements under international accounting standards are not exempt from the requirements of the Companies Act 2006. The difference is simply that they apply the international standards rather than generally accepted accounting practice in the UK (UK GAAP). Company accounts consist of various financial statements which enable an assessment of the financial position of the company. For a business accountant preparing Companies Act accounts there is a difference between its statutory accounts and the accounts which it must prepare to comply with accounting standards (i.e. its non-statutory accounts). Its statutory accounts consist solely of the profit and loss account and balance sheet together with notes to those financial statements. The accounting standards also require a company to prepare a cash-flow statement and a statement of total recognised gains and losses (STRGL). In practice, therefore, pure statutory accounts are seldom produced by accountancy services as companies also need to comply with the wider requirements of the accounting standards. There are five general principles that should guide the production of annual accounts and financial statements by chartered accountants:
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