This article contains a short introduction to annual financial statements, including the content of an annual financial statement and a guide to the Annual Financial Statements Act.
What is an Annual Financial Statement?
The purpose of an annual financial statement is to provide a reliable picture of a company’s economic situation - including assets, liabilities and financial results. You calculate, how a company has used its resources over the course of a year. A fiscal year lasts from January 1st until December 31st and thus, the annual financial statement provides a picture of the previous year. An annual financial statement is also referred to as an annual report.
Annual Financial Statements Act
Joint stock companies and limited liability companies shall furthermore have their annual financial statements approved by an auditor. For the latter, the annual financial statement shall also be approved by
The Annual Financial Statements Act divides companies into five accounting categories;
Accounting category A as regular personally owned companies, such as one-man-companies and partnerships.
Accounting category B as typically minor cooperatives and entrepreneurial companies.
Accounting category C as small and medium-sized companies that are not listed on the stock exchange.
Accounting category D as companies listed on the stock exchange or publicly owned companies.
What does an annual financial statement contain?
An annual financial statement contains a list of the company’s assets and liabilities. That section is called the balance sheet. Assets can be anything ranging from cash and cash equivalents to property and intellectual properties, such as patents. Liabilities can for example be equity, the company’s debt or accounts receivable. Thereby, a balance sheet provides a snapshot of a company’s value.
The income statement is a different part. Therein, a company’s annual income and expenses are listed in order to determine, whether a company has produced a profit or a deficit. Invoices are also taken into account here.
Finally, there are the notes. In this section, individual items can be elaborated on. Big companies (accounting category C and D) also have to account for their CSR-policy in conjunction with the presentation of the annual financial statement.
Fundamentally, an annual financial statement has to be transparent, clear and neutral, as it may not mislead. Furthermore, it has to contain all essential circumstances and the accounting method has to be consistent throughout. Moreover, it needs to have continuity with regard to previous fiscal years.
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Disclaimer: This overview is for informational purposes only and cannot be counted as legal advice.