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Audit reports and accounting records

Most countries impose the responsibility of accounting and the preparation of annual financial statements on the companies which are incorporated there.

For example, whilst the United Kingdom limited liability partnerships are exempt from taxation if they meet certain criteria, they are not relieved from the responsibility of preparing and filing appropriate financial statements.

Whilst classic offshore jurisdictions may have no filing requirements, the companies there are increasingly obliged to keep their original accounting documents.

The issue of reporting is of high importance in working with any company. Accordingly, we list below the main criteria the company owner will need to know for proper regulatory reporting compliance.

Fiscal year: Each country may determine the fiscal year, or reporting period, differently. For example, in Denmark and Cyprus the fiscal year, regardless of the date of incorporation of the company, is the calendar year (from 1st January to 31st December).

In contrast, in the United Kingdom the final date of the reporting period is the last day of the month from when the company was incorporated.

Documentation to be filed: This depends on the specific operations, but in most cases the main document is a bank statement for the above reporting period, and the supporting documents such as contracts and invoices for each transaction in the statement will also need to be included.

Auditing the report: The approach of different countries to the auditing requirement is different. In particular, in Cyprus the annual report must be certified by a licensed auditor. In the United Kingdom, an audit is required if specific criteria are exceeded regarding the annual financial results such as if the company’s turnover for the year amounts to more than GBP 6.5m and the balance as at the reporting date is more than GBP 3.26m.

Penalties: In addition to increasing fines imposed by the registrar and/or the tax authorities for the delay or lack of financial reporting, in some countries, not only civil liability, but also criminal liability is provided for the officials of the company for such violations.

Moreover, in almost all countries, in cases where no statutory reporting is in place, the register will remove the company status of good standing first, and then begin the process of forced liquidation of the company after a certain period.

There are three basic principles in the preparation of financial statements:

  1. If the company has not carried out any operations in the current fiscal year (for example, the company has been purchased but has not started its operations yet), a nil report (dormant accounts) is filed.
  2. If the company has acted as an agent by cooperating with another company (the principal), the charges received by the agent company from the principal in whose interests it has acted are to be included in the report.
  3. Full report. This is when the company has acted directly on its own behalf and in its own interests. In this case, the company’s business and financial documentation for the particular reporting period must be presented to the accountant for the preparation of financial statements. The types of business documents requested are in accordance with the standard list, which may vary depending on the accounting requirements of each specific jurisdiction.

INTERNATIONAL OVERSEAS SERVICES will ensure that professional accountants and auditors will prepare appropriate annual financial statements in accordance with the requirements of the particular jurisdiction of the company’s incorporation.