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Financial closure

More than just a legal obligation

Veronika Žáčková
14/11/2019
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We are approaching the end of the year, and many tasks, including accounting, have been fulfilled. For some, the financial statements are only a legal obligation, for others the possibility to present their financial results to management. But not everyone can compile them correctly. What is their meaning and what to watch out for?

The financial statements are required to be prepared by each accounting entity. However, it has to be prepared in different definitions and extent, depending on the size of the company, we say that the company prepares financial statements in full or shortened scope. Unless otherwise provided by the Accounting Act, only those entities that are not required to have the audited accounts may compile the financial statements to a limited extent.

Each financial closure is an integral whole and must at least consist of a balance sheet, a profit and loss account and notes that explain and supplement the information in the two previous statements. To comply with the full scope obligation, it is also necessary to compile a cash flows, changes in equity, etc.

It may be difficult to correctly identify the size of an entity and therefore the scope of the financial statements, so it is better to contact an experienced accountant. If you have doubts in this area, do not hesitate to contact us.

 

What is the meaning of the financial statements?

The financial statements are one of the essential and comprehensive information about the company, which is available to a wide range of users from banks, investors to the tax office. Its aim is to provide information not only on the profit or loss for accounting period, but also on the status of assets and liabilities of the company. The information in the financial statements must be legally reliable, comparable, understandable and judged by materiality. All information provided is intended for purpose and is appropriately linked.

If you are a managing director of a company and you also participate in decision making, you usually get information regularly in the form of monthly outputs from accounting. Nevertheless, the financial statements are important to you because you are responsible for the proper compilation and for making decisions resulting from them.

 

Be careful with a lot of things

Financial statements are certainly not automatic action that can be obtained with one click from the accounting software, and not every accountant is able to prepare flawless financial statements with all the requisites.

The financial statements are a legal obligation for all entities. It is usually in the form of the so-called regular, i.e. once every 12 months, when its processing closes the annual accounting period. Companies trading on the stock exchange are also obliged by law to produce half-yearly reports. Of course, there may also be situations (such as the payment of an advance on dividends) where an enterprise has to prepare so-called interim financial statements.

 

The statutory body of the company is responsible

The final version of the financial statements is presented and approved at the General Meeting, which is legally required by the statutory body once a year. The statutory body (executive director and the board of directors) is generally responsible for the accounting and the resulting financial statements, i.e. for the results presented therein.

The financial statements must be approved no later than six months after the last day of the previous financial year. Therefore, if the financial statements are prepared as of December 31, 2019, the General Meeting must be convened by June 30, 2020 and the financial statements approved.

If this is not the case, the financial statements cannot be disclosed and there is a risk of a fine of up to 3% of the gross asset value. Nor can a dividend be paid. After that date, only an advance on dividends can be paid, based on the preparation of the interim financial statements.

No later than the end of the year of the following accounting period, the financial statements must be published in the Commercial Register. (i.e. until December 31, 2020 for the financial statements for 2019). The audited companies have to comply with the legal obligation several months earlier, and no later than 30 days after the approval of the financial statements, respectively its verification by an auditor.

As mentioned earlier, not every accountant can prepare quality financial statements with all the requisites. If you need assistance in this matter, we are fully at your disposal.

Author

Veronika
Veronika Žáčková
Accounting Team Leader
Crowe