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

It is true that the presentation of the financial year report has become a topic that experienced entrepreneurs know quite well, but there are still entrepreneurs who are starting out and are looking for practical information about it. That’s why we decided to write an overview of the information an accountant needs to prepare an annual report to simplify the process for all parties involved.

Overview of transactions made during the financial year

An overview of transactions during the financial year is one of the most important documents that entrepreneurs and accountants need in connection with the annual report. This is because the calculation of costs and profits starts from the sums of inflows and outflows.

In addition, if the company has employees and pays labour-related taxes to the tax office every month, the previously submitted declarations are also useful for accountants to check correctness.

Equity in compliance with requirements

After the accountant has a proper overview of the transactions made during the financial year and the company’s profit or loss, it must be checked that the equity meets the requirements (a micro-enterprise must not have greater liabilities than the equity) and is not negative.

There may also be a situation where the company’s equity is negative. In this case, the company’s management must discuss possible solutions in order to restore equity to meet the requirements.

Activity report

The board members of a small company have the obligation to prepare an activity report for the annual report and forward it to the accountant. There is no activity report obligation for micro-enterprises. The activity report contains an overview of the company’s activities and circumstances that are of decisive importance in the assessment of the financial status and economic activity in connection with the annual report.

The activity report must describe:

  • the company’s fields of activity;
  • products and services;
  • more important investments made during the financial year and planned in the near future;
  • important research and development projects and related expenses in the reporting year and subsequent years;
  • other events that took place during the financial year, which are not reflected in the annual financial statements, but which significantly affected or may affect the results of the following financial years.

Claims against buyers

Regarding the balance sheet of the annual report, it is important to highlight the company’s claims against buyers. There are often situations where the product or service has been sold to the buyer, but the money for it has not yet been received.

Therefore, claims must also be dealt with proactively and balance confirmations and an overview of receipt of invoices must be issued to buyers. In addition, the probability of receipt of receivables must be objectively assessed and the accountant informed about this.

Obligations and liabilities

By having a proper overview of financial obligations, it is possible to get an idea about the company’s future expenses. Therefore, it is important for the accountant to know about the various contracts, contract terminations and products or services that the company provides a guarantee for, etc.

Obligations and liabilities may include:

  • loans;
  • warranty provisions;
  • redundancy payments;
  • bonuses for the board or employees for the work done in the reporting year;
  • provisions for contract or litigation adverse to the company.

Inventory

It is also important to communicate the state of the company’s inventory to the accountant. The company’s inventory must be converted as of the balance sheet date or as close as possible to the balance sheet date, and an inventory report must also be drawn up.

Fixed assets

In relation to tangible fixed assets, an inventory must be carried out as of the balance sheet date. Similar to stocks, an inventory deed must be completed when accounting for tangible fixed assets.

Other assets and liabilities

It is important to inform the accountant of all potential assets and/or liabilities that should be disclosed in the annual report.

Transactions with related parties

It is important to inform the accountant of all transactions with persons and/or parties related to the company.

Related parties are considered to be:

  • the company’s executive and senior management and their close family members and companies controlled by them or under their significant influence;
  • the parent company and persons controlling or having significant influence over the parent company;
  • private owners with a significant stake and close family members of these persons and companies controlled by them or under their significant influence;
  • subsidiaries, etc.

Important events after the balance sheet date

It is also important to inform the accountant of all important events after the balance sheet date that affect the information presented in the annual report.

This can be:

  • litigation or judgments;
  • disputes with customers/suppliers regarding significant revenues and expenses;
  • emerging potential liabilities;
  • merger and division plans;
  • significant changes in loan and share capital;
  • significant changes in the customer base;
  • frauds that have occurred (including by employees) or violations of the law that have been revealed;
  • guarantees given to ensure the obligations of management, employees and other persons;
  • important decisions and protocols of shareholder/partner meetings.

Incorporate can handle your business’ needs

Whether you are looking for a business partner to handle your daily accounting or take care of tax obligations, Incorporate is here for you! We have extensive experience with both local and international clients, who must comply with numerous Estonian and EU laws.

If you would like us to take care of your business’ bookkeeping or help you to manage your business in Estonia, make sure to reach out to us!

Disclaimer: This article provides general information, which may or may not be correct, complete or current at the time of reading. No recipients of content from this site should act on the basis of content of the article without seeking appropriate legal advice or other professional counselling.

Table of Contents

YOU MIGHT ALSO LIKE

How to use the Incorporate client portal

Explore our concise guide on the Incorporate client portal, a seamless communication tool between clients and our accounting/legal team. Learn to navigate the dashboard, send messages, manage tasks, and utilize this platform effectively for your business’s accounting and legal needs.

Read More →