No company will be able to operate in the European Union or in most of the other jurisdictions today without preparing appropriate financial statements.
The legislation provides for the relevant requirements of a company to ensure the legitimate and proper status of it. A company shall:
- keep its accounting and financial records as well as maintain them in order
- draw up its financial statements or accounts
- file the financial statements with the company registry or other authorities of this country in accordance with the relevant laws
Specific requirements for the format and contents of financial statements may vary across countries, but the correct preparation of such statements is amongst the basic factors for successful operation of the company.
Inter alia, the criteria regarding the financial statements that may differ across countries are as follows:
- The concept of fiscal year
Some countries such as Cyprus and Denmark follow the calendar principle of the fiscal year whereby the accounting period is set from 1st January to 31st December. Other countries adhere to the principle that a company may determine the date on which it draws up its financial statements being account reporting date by itself. As an example, the account reporting date for British companies is usually set on the last day of the month when such a company was registered but on the decision of the company it may be also another date.
- Contents of financial statements. In most jurisdictions mandatory components of financial statements include:
- the profit and loss statement;
- the balance sheet.
However, in some jurisdictions these two key components have to be supplemented by further information such the cash flow statements or declarations of changes in equity.
The most commonly used accounting principles are known as GAAP (Generally Accepted Accounting Principles). Originally, the term GAAP applied to the United States accounting standards. However this term means a national accounting standard applicable in a particular country such as the Danish GAAP.
IFRS (International Financial Reporting Standards) are a set of documents, standards and interpretations that regulate international accounting standards. Before 2001 these were known as IAS (International Accounting Standards).
Unlike national regulations, IFRS constitutes standards based on principles rather than fixed rules. The purpose of IFRS is to enable the authors of the statements in any practical situation to follow the principles rather than try to find the loopholes in strictly fixed regulations. IFRS principles include the elements of accrual basis, going concern, prudence and relevance.
Lexon Incorporations, in cooperation with their associated accounting firms, will ensure that financial statements are prepared and audited in accordance with the requirements of standards applicable in the particular country where the company is registered.