In the complex world of financial management, statutory and management accounts are both crucial in providing an overview of business finance – but each serves a very different purpose.
Limited companies must prepare statutory accounts by law each year for the benefit of their stakeholders and Companies House. Management accounts are optional and typically produced monthly or quarterly to provide an in-depth look at financial performance to aid internal decision-making.
This blog post will discuss the key differences between these two types of accounting practices, providing you with the knowledge to ensure your company’s compliance and make data-driven decisions that improve business performance.
If you are looking for a trusted accounting partner to help you compile annual accounts or produce insightful management account reports, then Ascott Blake can help. We are a commercial, dynamic accountancy team focused on helping our clients to reach their financial potential. To request a callback, please fill in our contact form.
What are statutory accounts, and why are they important?
Statutory accounts (also called ‘annual accounts’) are compiled by company directors to report on the company’s financial position. Producing statutory accounts is a legal requirement for companies, and they must be submitted to Companies House annually.
These financial statements must follow a standardised format to ensure transparency and comparability among companies in the same industry.
Statutory accounts are made public and are intended for external stakeholders, such as investors, creditors and shareholders, who use the information to assess a company’s financial health, compliance with regulations, and overall performance.
What do statutory account reports include?
Limited companies are required to produce statutory reports (or ‘year-end accounts’) on an annual basis and submit them to Companies House. These types of financial reports show overall spending rather than a detailed breakdown of specific expenses and costs.
Statutory reports show the company’s financial movements over the course of 12 months and include:
- Company information
- Profit and loss account
- Balance sheet
- Directors’ report
- Cash flow report
- Notes to the accounts (i.e. director’s commentary on the financial statements)
- Auditor’s report
What do Companies House use statutory accounts for?
Statutory accounts are used by the government, creditors, investors, and other stakeholders to assess a company’s financial health and stability. They also provide information for tax purposes and help to ensure transparency, accountability and governance in line with UK regulations.
How are management accounts different to statutory accounts?
In contrast to statutory accounts, management accounts are internal reports prepared to aid business management and internal decision-making.
A management account report is used to assess the company’s previous successes and current progress in order to make strategic decisions and accurate forecasts.
Management accounts are flexible and can be structured in whatever way aids the business. They are typically prepared monthly or quarterly, allowing for more frequent analysis and adjustment of operations.
To learn more about what management accounts are, then read our informative blog.
Key features of management account reports
Limited companies are not legally required to produce a management account report, but many consider it an invaluable resource. The process facilitates the collection, processing, and analysis of data necessary for tracking the financial position of the company and making management decisions.
Management accounts are indispensable in analysing a company’s financial situation to develop strategies for economic change and growth. They allow for accurate forward planning; for example, providing insight into the correlation between cash flow, production, and specific sales makes it possible to predict the need for funds to purchase expensive equipment, enter a new market, or open a new business unit.
A management accounts report goes into more detail than an annual report and is typically prepared on a monthly or quarterly basis. It can include:
- Budgets and forecasts
- Profit and loss report
- Balance sheet analysis
- Key performance indicators (KPIs)
- Financial ratios
- Departmental performance
Comparing the Uses of Statutory and Management Accounts
The key differences between a statutory account report and a management account report can be summarised in five points:
#1 Compliance: Statutory accounts are required by law, and management accounts are optional but considered essential to business management.
#2 Audience: The primary reason for preparing statutory accounts is to inform stakeholders and Companies House of the company’s financial actions over the year, while management accounts are for the benefit of the directors of limited companies to aid strategic decision-making.
#3 Distribution: Statutory accounts are public, and management accounts are strictly internal reports.
#4 Frequency: Statutory accounts show annual financial information, while management accounts are prepared more frequently, usually on a monthly or quarterly basis.
#5 Format: Statutory accounts must follow a fixed format as dictated by Companies House, while management accounts are flexible and can be tailored to the needs of the business.
Talk to Ascott Blake about your statutory and management accounts requirements
We hope this has been a useful overview of these two types of accounts. If you are a limited company director seeking professional assistance in preparing financial reports, then do get in touch with us at Ascott Blake.
It goes without saying that as your accountant, we will compile your statutory accounts with meticulous attention to detail and keep your company compliant.
But we’re also here to add value to your business operations – which is where our management account expertise comes to the fore. We will help you to harness your data to make accurate and powerful decisions that move your company forward.
Whether you’re just starting out or seeking to expand, we have the accounting expertise you need to help you succeed. Along with regular our professional statutory accounts service and financial reports preparation, we can help with key accounting practices such as payroll, tax and Xero cloud accounting software.
Contact us to apply for a free accounting consultation today.
Conclusion – what is the difference between statutory accounts and management accounts?
While a limited company must submit statutory accounts (also known as annual accounts) each financial year, there is no legal requirement to produce management accounts.
The key difference between the two accounting practices is that statutory accounts are designed to showcase financial actions across the year, whereas a management report is designed to monitor financial movement over a shorter period, typically on a monthly or quarterly basis.
Statutory accounts are used to provide stakeholders and Companies House with confidence, whereas management accounts allow the directors to maintain tight financial control and make better business decisions.
What is the penalty for late filing of statutory accounts?
Companies House issues penalties for late filing of statutory accounts, from £150 for up to one month late to £1,500 for more than six months late.
What are abridged statutory accounts?
Small businesses can opt to provide abridged annual accounts, which comprise of only a balance sheet and notes to the accounts – any other type of financial statement, such as a profit and loss report, is optional. To be eligible, the business must have less than 50 employees, a turnover of under £10.2m and a balance sheet total of under £5.1m.