Quick poll!

rolling forward data

A lot of these sorts of errors stem from rolling forward disclosure data and not using a disclosure checklist.

Most software packages will trigger a disclosure if you leave a number in the relevant box, even if it isn't needed.

Dividends on face of P&L a/c is excellent

On the basis that accounts should be user-friendly (as in easy for the directors and shareholders to understand them):

1.  It is excellent to show dividends on the Profit & Loss Accounts (eliminates a stupid extra note if this is not done and makes it easier to read the accounts).

2.  It is extremely useful to show shareholdings of directors in the Directors Report

On the other hand look at the following garbage that sometimes is included in statutory acounts:

a.  Contents page

b. Company information page

None of the above is legally required, howebver a and b are useless whilst 1 and 2 are useful.

The purpose of the accounts is to help the directors and shareholders and NOT to be blindly obedient to "recommended practice" devised by those out of touch with the reality of small business clients.  

So, when I see accounts having items 1 and 2 but not a or b I think "there's an accountant in touch with customer needs".

As far as I see it, "the less pages the better" and "the less notes the better".  It is most certainly possible to be legally compliant following this principle.

A personal whinge

I do hate to see a set of limited company accounts filed at Companies House which actually do not add up!

David

A further whinge...

I sometimes come across FULL accounts filed at Companies House rather than Abbreviated Accounts when Abbreviated Accounts could legally be filed rather than "breach of client confidentiality" full accounts.

There are a number of ACCA / ACA firms of accountants in the West Midlands who are guilty of breaching client confidentiality in this respect.  I don't how this comes about in the firms that I've come across with this policy, maybe they short-change their clients by saving the cost of preparing Abbreviated Accounts (qualified firms of accountants deserving the title "Rogue Traders") or they might offer the preparation of Abbreviated Accounts are an "optional extra" and their clients are oblivious to the fact that most firms of accountants supply Abbreviated Accounts all as part of the service - and not at a rip-off extra fee.

Or maybe,

as with one of my clients, because the client wants to file full accounts. (Rare, I grant you).

what does the client want?

I normally disuss with the clients the option of having abbreviated filed vs full accounts. I also the disclosures that are optional

At the end of the day its up to them, we are merely here to advise.

I have two clients who think completely differently.  One wants as much disclosure as possible and the other as little as they can get away with.  I can only advise on the pros and cons as opposed to telling them what to do.

Ditto

As long as the rest of the disclosures are compliant with Co's ACT/standards, and the client is made aware of the issues, there is nothing wrong in providing more info than is strictly necessary.  They are the client's accounts not ours.

I have a number of clients who prefer to file full accounts as they can use the directors' report as a marketing page telling prospective stakeholders what the company is about.  Several of these clients tender to large companies & government departments for work and might not get a sniff if the prospective purchaser just saw a naff set of electronically filed Abbreviates at Companies House.

Similarly, unless there's a note somewhere a simple set of Abbreviates can give an awful impression of the company's state when the largest creditor is directors' funding.

In response to the Op's leading question, I still have one client who discloses director's shareholdings as that's where the other shareholders like to see it, so what?

Correct disclosure

I disagree with DMGbus.

There is no requirement to disclose directors' shareholdings in the directors' report or notes to the accounts.  Doing so may leave you open to claims from the client that you have disclosed confidential information.  Nor do I accept that it is of any use to the directors or shareholders to see in the accounts how many shares they hold - they should already know this and it is irrelevant to an understanding of the accounts.

It is completely wrong to disclose dividends on the face of the P&L account.  None of the statutory P&L formats set out in SCG(ADR) Regs. 2008 Sch.1 include Dividends - they all end with Profit or Loss for the financial year.  I think it is still permissible to tack the Movement on Reserves note onto the bottom of the P&L, but it must be shown separately, so I don't how it "eliminates a stupid extra note".

That said, I agree with Paul Scholes that you can always give additional disclosure if the client wishes.

Occasional request to file full accounts & transparency

I have had only 2 clients who wished to file full accounts at Companies House and this is not the norm. The director felt he might get better credit terms by full disclosure and the other co was regular scouting for big government department work and apparently, in that director's view they prefer the transparancy.

I'm with Paul Scoles, it's horses for courses and what the client wants, with reason, etc is what the client gets. It's their accounts after all.

Funnily enough, with directors' interests, I currently have a case where I feel it would be better to disclose the shareholdings as it was under the CA85 act in order to clarify a point with HMRC.

Post credit crunch

We are finding it increasingly important to ask the client if they need to file full accounts. Many clients filing abbreviated accounts have had their credit limit with suppliers reduced and filing full accounts has rectified this - especially where increased dividends were extracted prior to the 50% tax rate coming into force.

Breach of client confidentiality

I can't see how disclosing a director's interest in share capital could be considered to be breaching client confidentiality when it is already a matter of public record.

I can't say I have a strong opinion on the matter. I know some people incorrectly believed that doing so removed the requirement to disclose the dividends as a related party transaction.

Dividends

I always show dividends on the P & L, not because I'm unaware of the statutory regulations but because it's a less disjointed way of disclosing the minimum information required by the Companies Act. This treatment was deemed acceptable by a well respected lecturer on a small companies disclosures course I attended.

However it is imperative to show the reserves brought forward first in order to demonstrate that dividends were paid from cumulative profits.

We must all interpret the Law as we see fit. I do feel sorry for those that blindly accept that what emanates from their regulatory bodies is cast in stone. I'm thinking particularly of the advice to disclose dividends as a related party transaction whereas neither the CA2006 nor the FRSSE mentions such a major transfer of monies between the company and the individual.

I agree that some of the stuff being produced by members of regulatory bodies (note I didn't use the word "qualified") is pretty poor and merely reflects years of dumbing down standards.

Dividends in P&L definitely lawful (and good)

It was in 2005 when a change in presentation of dividends came about.

I can't remember any consultation being made about this change nor any justification for it at the time.  It was an edict passed down for blind obedience, perhaps by those more expeienced at dealing with listed companies.  It was quite possibly a way of hiding the fact that some companies were paying more out in dividends than current profits.

The presentation has been debated several occasions before on AWeb since 2005.

What IS wrong is to deduct dividends off current year profits.

What the 2005 change said was that dividends should instead be deducted off reserves.

In practice (as previous Aweb discussions have confirmed) this change can be achieved by moving the deduction to below reserves brought forward on the P&L.

As one commentator has said the accounts are less disjointed this way - as opposed the sillyness of having to create a note because of not showing dividends where they've been for decades. 

At the end of the day the accounts for the client (directors/shareholders).  Over-complicating (and fragmenting) the accounts / information by blindly following recommended practice makes the accounts more difficult to follow through and make sense of.  We are, in the cases I deal with, talking about small owner-managed companies - not listed PLCs where the enthusiasm for for creating as many notes as possible may or may not have some merit (to bamboozle shareholders with mass OTT information).

I feel that a set of accounts made more complicated is less good for the client as in less easy to understand and I have to say how can a client satisfactorily  sign off a set of accounts that have been deliberately / knowlingly made more complex / more disjointed (less easy to understand) by that person who is paid to prepare them?

Full accounts at Companies House

I've seen three instances of firms of West Midlands accountancy firms filing full accounts filed at Companies House.

CASE ONE: I believe arose because the accounts preparer firm was probably unaware of the option to file Abbreviated Accounts or maybe didn't know how to draw up such accounts.

CASES TWO AND THREE: The large number of clients for these two firms affected suggested that it was a clear policy within the two foirms to file full rather than abbreviated accounts.   In at least one instance I consider that this breach of confidentiality has probably caused commercial damage to the client company as in a competitor now has access to confidential ratios on the P&L account and appears to be using that data to their advantage to compete vigorously with said client.   In none of the cases has their been any obvious "improvement in credit rating" by filing full accounts rather than Abbreviated Accounts.   It is perhaps overlooked that if there really was an advantage to disclosing a pertinent fact in the accounts filed at Companies House then this could be achieved by an extra disclosure note in the Abbreviated Accounts rather than show rather too much confidfential information by filing full accounts.