A question that I’m often asked is "What is the difference between statutory and management accounts?". Both sets of accounts focus on the past financial performance of the business, however, there are several differences, which I outline below.
The objective of statutory accounts is to provide a summary of a company’s financial position over a specific period, typically a year. They are a legal requirement, and the contents depend upon the size of the business. For micro and small* SMEs that can file filleted accounts (accounts filed without the profit and loss account and/or directors’ report), this may only be the balance sheet, (which shows the value of everything the company owns, owes, and is owed on the last day of the financial year). The company’s profit and loss account (which shows the sales, costs, and the profit or loss the company has made over the financial year) is only required once a company is classed as medium or large*.
Copies of the statutory accounts must be sent to all shareholders, Companies House, and HMRC as part of the Company Tax Return.
Statutory accounts are prepared at the end of the company’s financial year, and if the business is over a certain size*, the accounts will be audited by external auditors.
Statutory accounts must comply with accounting standards and are required to be submitted online, with a penalty for late submission. Statutory accounts, for any company, can be accessed online, by anyone, at Companies House.
Whilst statutory accounts are prepared for external stakeholders, management accounts are prepared for use within a company and whilst deemed good practice, they are not a mandatory requirement. Management accounts involve collecting data to provide key information to help drive decision-making, planning, and control.
As management accounts do not have to adhere to external standards, there is more scope for flexibility in the format and content. As such, management accounts can focus on the metrics that are key to the individual business such as –
Profit and loss, including performance by division or department.
Sales figures, ideally broken down in a meaningful way for your business for example by site/product/customer type, etc.
Actual performance versus budgeted performance.
Cash flow forecasts.
Details of debtors and creditors, including aged reports and activities around late paying customers.
Balance sheet showing a snapshot of where the business is, detailing assets and liabilities.
Stock levels, if applicable.
As lots of numbers on a page can be overwhelming, it can be helpful to view the information in graph format. There are many options to do this with management accounts and we use Spotlight Reporting to deliver clear, helpful information.
The frequency of management accounts is decided by the business, and I would recommend producing them every month as having access to the information regularly enables business owners to be able to make timely decisions and act on any issues identified.
To see how management information can benefit any business click here for an article that I wrote. If you would like to benefit from the insight our monthly management information packs provide, please get in touch – we will be happy to help.
*At least two of the following criteria:
Micro company: Turnover<£632k, Balance Sheet <£316k and Employees <10
Small company: Turnover<£10.2m, Balance Sheet <£5.1k and Employees <50
Medium company: Turnover<£43.2m, Balance Sheet <£21.6m and Employees <250
(Subject to audit)
Large company: all other companies. (Subject to audit)
Please note this can be more complex and always check with your accountants.