Additional financial statements for LLC

Additional financial statements for LLC

Types of financial statements

The financial statements of a limited company are, in essence, the same as those of a sole proprietor or partnership.

Main financial statements are: Balance Sheet and Income statement.

Additional statements are: Statement of comprehensive income and Statement of changes in equity.

Statement of Comprehensive Income

Statement of Comprehensive Income refers to the statement which contains the details of the revenue, income, expenses, or loss of the company that is not realized when a company prepares the financial statements of the accounting period.

the conventional income statement shows all realised gains and losses for the period, but comprehensive income statement shows  unrealised losses and gains.

The statement of changes in equity

The statement of changes in equity aims to help users to understand the changes in share capital and reserves that took place during the period. Beginning capital, all increases in capital, all decreases in capital, and ending capital.

The need for accounting rules

The directors’ duty to prepare and publish following framework of rules concerning their form and content. Without rules, there is a much greater risk that directors will employ accounting policies and practices that will present an unrealistic view of financial health. There is also a much greater risk that the financial statements will not be comparable over time, or with those of other businesses. Accounting rules should help to create greater confidence in the integrity of financial statements.

Sources of accounting rules

The rules, which are known as International Accounting Standards (IASs) or International Financial Reporting Standards (IFRSs), deal with key issues such as:

■ what information should be disclosed;

■ how information should be presented;

■ how assets should be valued; and

■ how profit should be measured.

The auditors’ role

Shareholders are required to elect a qualified and independent person or, more usually, a firm to act as auditors. The auditors’ main duty is to report whether, in their opinion, the financial statements do what they are supposed to do, namely to show a true and fair view of the financial performance, position and cash flows of the company.

Connections

The directors are appointed by the shareholders to manage the company on the shareholders’ behalf. The directors are required to report each year to the shareholders, principally by means of financial statements, on the company’s performance, position and cash flows. To give greater confidence in the statements, the shareholders also appoint auditors to investigate the reports and to express an opinion on their reliability

The directors’ report

The directors are required to prepare a report to shareholders relating to each financial period.

The content of the directors’ report is prescribed by law and includes assorted topics such as: current year’s performance and position, future prospects of the business and social aspects.

The directors’ report contains information of a financial and a non-financial nature, which goes beyond that contained in the financial statements

For companies of significant size, the report must cover, amongst other things, the following matters:

■ the names of those who were directors during the reporting period;

■ any recommended dividend;

■ the involvement of employees in the affairs of the company;

■ the employment and training of disabled persons;

■ important events affecting the company since the year-end;

■ likely future developments in the business; and ■ research and development activities.

Directors report and auditing

In addition to disclosing the information mentioned above, the directors’ report must contain a declaration that the directors are not aware of any other information that the auditors might need in preparing their audit report. There must also be a declaration that the directors have taken steps to ensure that the auditors are aware of all relevant information.

 Strategic report

The overall aim of the report is to help shareholders understand how well the directors have performed in promoting the success of the company.

The strategic report provides largely narrative information to help assess the financial performance and position of the business