Small company financial reporting: Disclosure problems revisited

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Steve Collings lists the 10 most common reporting errors and explains how to avoid them.

Last year, I wrote an article for titled ‘Overcome your disclosure problems’. This article highlighted some of the most common failings in a set of financial statements prepared for small companies who are eligible to report under the Financial Reporting Standard for Smaller Entities (FRSSE).

Unfortunately with the new Companies Act 2006 (CA06) and ever increasing burdensome reporting requirements being bestowed upon the profession, these reporting problems seem to keep rearing their heads. This article looks at 10 of the most common problems that are still prevalent in professional practice and, where possible, interacts with the new CA06. It sho...

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About Steven Collings


Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd where Steve trained and qualified.


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By Anonymous
20th Aug 2009 17:54

Query about the last paragraph
Never heard of the FRRP doing random checks generated using company numbers.

It is not mentioned on their website or in their operating proceduces manual.

Yes technically they can investigate any company but in practice they only look at plc and large private limited companies.

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By jdavies
20th Aug 2009 18:37

It is right
A friends OMB had a letter from these guys saying his accounts were not in accordance with certain guidelines.
It's not just the big companies they look into I assure you!

Good article by the way! Very useful.

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By jdavies
20th Aug 2009 18:56

FRRP are pussycats
Compared to the QAD inspectors! I came out of practise after about 15 years only recently after one of these visits! They are like the mafia when they find something hasn't been disclosed or something hasn't been checked.

I'm like a dog with two didgeridoos working in a company.

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21st Aug 2009 12:44

Why worry
The fact that you bothered to read this article means you take accurate disclosure seriously and wanted to check if you are missing the obvious. You laugh at the suggestion that a competent accountant could file accounts that don't add up, try this for size.

New client can't find prior years full accounts suggests you request a copy from previous agent, they respond in writing to point out to you that the company files abbreviated accounts and therefore does not prepare full accounts.

I still laugh everytime .

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By eddybee
21st Aug 2009 12:58

some things don't change
It is now 5 years since I left traditional practice where I had a number of years as technical partner.

Reading this I have a feeling of deja vu - although fortunately i don't think we ever had a non balancing balance sheet!!

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By Anonymous
21st Aug 2009 19:30

Directors/Dividends/Related Parties
This item in your list will surely affect a large percentage of small companies. Is a Related Parties note required for any size of dividend and any % of director's shareholding?

Is it possible to give an example of the wording of such a note?

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26th Aug 2009 13:41

Ref Dividend Disclosure

It isn't necessarily just the size of the dividend that may be "material" and the significance of the dividend on the company itself, but also you have to consider the materiality of the individual receiving the dividend (the other related party), especially when the other related party is in a position of influence over the entity, or that person's close family. In owner managed companies, this is likely to be a material transaction.

In terms of disclosure, this can be as simple as:

During the year the following dividends were paid to the directors of the company in respect of ordinary shares:

Mr X £X (2008: £X)
Mr Y £X (2008: £X)

This is only an FRS 8 requirement so you only need to put this into the full financial statements rather than the abbreviated.

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30th Aug 2009 13:41



I bow to your superior knowledge of disclosure requirements but would challenge the basis of your decision to include dividends as "transactions" with directors/shareholders. Is your decision based upon your own interpretation of FRS8, the relevant FRSSE and Company Law or the fact that both the ACCA and the ICAEW have come out in its favour?

I recall that the Companies Act 1985 broadly categorised "transactions" as commercial transactions (buying and selling goods and services) with and loans (to or from) related parties and made no mention of dividends (presumably because shareholders were not deemed to be related parties in the context of those particular transactions). 

You are suggesting that pre-Companies Act 2006 directors' reports usually contained enough information via the shareholding disclosure to establish the relevant figures. I don't dispute that in the vast majority of cases that this is so, but where there is a change in shareholding this would not be possible unless one knew the dates of change and the dates of the dividends.

I'm quite happy to be swayed in favour of your view but respectfully need a bit more convincing.

Tom Egerton













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01st Sep 2009 13:21

Hi Tom,

I based my interpretation of the dividends disclosure on the requirements within FRS 8 / FRSSE equivalent, GAAP and the impact that the abolition of director-shareholder interests from 6 April 2007 in the Directors Report had on a set of financial statements.

As you know, when directors' interests were disclosed in the directors report, it was fairly easy to quantify the amount of dividend paid to directors in their capacity as shareholder and therefore it was generally accepted within the profession that the related party issues were satisfied.  The impact of CA 2006 meant that directors' interests were no longer required to be disclosed in the directors report and as a consequence, it was no longer possible to quantify the amount of dividend given to the director-shareholders. 

FRS 8 does not explicitly refer to dividends, but in my opinion a dividend is still a 'transaction with a director' albeit in their capacity as shareholder.  Of course, not all accountants will share the same viewpoint and this is accentuated by the number of differing opinions as to whether dividends are disclosable or not as individuals may interpret FRS 8 / FRSSE equivalent differently.  Indeed this has been raised several times in 'Any Answers' on here with many people sharing different views.  However, most financial reporting experts are of the same opinion as myself that dividends are a disclosable related party transaction.

Of course, given the professional institutes have also come out in favour of disclosing dividends in the full financial statements, then if you are regulated by ACCA/ICAEW you should disclose dividends paid to director-shareholders as a related party disclosure.  As mentioned in my article, the professional bodies are becoming increasingly particular about correct disclosures and where practitioners do not agree with the dividend disclosure, then it would be up to the practitioner themselves to convince a QAD Inspector/ACCA Monitoring Officer otherwise.

Kind regards


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02nd Sep 2009 19:29


Thanks Steve, that's exactly what I wanted to know.

We'll have to differ on this one and I'm lucky I don't have the Institute or the Association looking over my shoulder.

I'm very sceptical about the tenuous link between the CA1985 directors' shareholding disclosure and some resultant related party transaction disclosure. I may be a bit dozy on this one but for reasons set out above I believe it would be impossible in certain circumstances to arrive at the correct dividend for an individual shareholder.

What is being suggested is that a reader of the accounts would need to look at 2 or 3 pages to do the calculation. He/she would start with the directors' report, then go to the issued share capital note (to exclude non-director shareholders) or the balance sheet, then go to the movement on reserves note for the dividends (or, as in my cases, to the P & L) and work out something that satisfies the definition of a "transaction".

It may be that the profession has indeed been fully aware of this for the past 20 plus years but I've certainly never come across it in all the expensive courses I've been on. It looks to me like "if in doubt, disclose it" but perhaps I'm being a bit harsh.







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