Abridged accounts

Abridged accounts are simplified form of accounts that includes a full accounting period but unlike annual accounts do not contain detailed financial information.

Current rules give small businesses the opportunity to hide detailed financial information that is usually included in profit and loss - income statement and balance sheet - statement of financial position.

As all companies at the end of the financial year are required to submit statutory accounts, small companies have the option of presenting shortened versions of accounts. Abridged accounts somehow replaced the previous version of simplified accounts - abbreviated accounts.

Regulations

The main regulations on abridged accounts are contained in Accounting Directive - an EU directive whose main task is to regulate the disclosure aspects of small companies.

In orders of EU Accounting Directive abridged accounts can be used by certain entities qualified as small companies. The main intention of this solution is to ensure the secrecy of finances.

In the United Kingdom and Republic of Ireland regulations of abridged accounts are included in The Financial Reporting Standard.

Small companies

According to United Kingdom company law small companies are those that meet at least two of the following conditions:

• net worth does not exceed 5.1 million £,
• turnover does not exceed 10.2 million £,
• the average number of employees does not exceed 50.

Small enterprises are also defined in the EU recommendation (2003/361). According to Definition of micro, small and medium-sized enterprises adopted by the commission - article 2 small enterprisee is an: "enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million".

Requirements where abridged accounts delivered

To be able to filed an abridged account, the following conditions must be met:

• the company must be an entity that qualifies as a small enterprise,
• the exclusion of information must be unanimously agreed by shareholders,
• the accounts must still meet the conditions to give a fair and true view.

Main advantage and disadvantages of abridged accounts

The main advantages are:

• Abridged accounts reduce the disclosure of financial information about the company that might be useful to competitors. This helps the company if it has activities in competitive markets rather than a niche market.
• It is an opportunity for small businesses to protect secrecy by shortening their profit and loss, balance sheet or both.

The main disadvantages are:

• Users of the financial statements may think the company has something to hide.
• Users will find inter-company comparison is difficult, as fewer figures are available for analysis.
• Small companies have to prepare and submit the same set of accounts for its members as they do for the public record.
• Agreement of shareholers must be obtained every year, so a continuing authority is not permitted.

Examples of Abridged accounts

• Profit and Loss Abridged Accounts:

These accounts are simplified forms of the profit and loss account, which only includes the gross profit, administrative expenses, and net profit for a given accounting period. These accounts are typically used by small businesses to demonstrate the efficiency of the business operations.

• Balance Sheet Abridged Accounts:

These accounts are simplified forms of the balance sheet, which only includes the assets and liabilities of the business. These accounts are typically used by small businesses to demonstrate the current financial position of the business.

• Cash Flow Abridged Accounts:

These accounts are simplified forms of the cash flow statement, which only includes the cash receipts, cash payments, and net cash flows for a given accounting period. These accounts are typically used by small businesses to demonstrate the flow of cash in and out of the business.

• Abridged Financial Statements:

These statements are a combination of all of the abridged accounts, which includes the gross profit, administrative expenses, net profit, assets, liabilities, cash receipts, cash payments, and net cash flows for a given accounting period. These statements are typically used by small businesses to demonstrate the overall financial performance and position of the business.

Other approaches related to Abridged accounts

Abridged accounts are a simplified form of accounts that includes a full accounting period. Other approaches that can be used to simplify accounting statements include:

• Consolidated accounts which combine the financial information of a parent company and its subsidiaries into one single set of accounts.
• Management accounts, which are designed to provide financial information to aid managers in making decisions.
• Cash flow statements which provide information on the incoming and outgoing cash receipts and payments.
• Ratio analysis that is used to compare different financial figures and identify trends.

In summary, there are various approaches that can be used to simplify accounting statements, such as consolidated accounts, management accounts, cash flow statements, and ratio analysis. Abridged accounts provide an overview of the full accounting period.

Footnotes

Abridged accounts — recommended articles

Abbreviated accounts — Interim Statement — Time period concept — Focus report — Accounting Convention — Statutory books — Economic entity assumption — Minute book — Periodicity concept — Bulk carrier

References

• Collis J. (2017). Business Accounting, Macmillan Education UK
• Law J. (2016). A Dictionary of Accounting, Oxford University Press
• Sleigh-Johnson N. (2017). Abridged accounts, "ICAEW"
• The New Accounting Directive: A Harmonised European Accounting Framework? (2016), Issue 9
• FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (2015), Appendix A, section 1A
• COMMISSION RECOMMENDATION of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (2003), Title 1, article 2

Author: Michał Lisicki