Elements of the financial statements
Pursuant to Article 2(1) of the Accounting Act, entities conducting business activity are obliged by law to prepare financial statements. The reports vary in form, content and size. However, regardless of the shape of the document, its main objective is to provide synthetic and comparable information on the assets of the entity and their sources of financing, as well as on its financial standing and economic situation.
The complete financial statements are primarily five interrelated sources of information on the basis of which it is possible to determine the financial standing of an entity conducting business activity. Balance sheet – a picture of the company’s assets and sources of financing as at the balance sheet date, profit and loss account informing about the income and costs of the period, their sources of origin, the type of activity to which they relate and the total net result of the period, as well as cash flow statement indicating cash liquidity of the entity. In addition, the complete financial statements contain additional information, as part of which the entities are obliged to describe first of all the manner of preparing the financial statements, adopted accounting principles and one-off, extraordinary situations occurring in the period in question, as well as the statement of changes in equity. For the sake of transparency, reliability, credibility and comparability of information, reporting is subject to legal regulations according to the Accounting Act.
Entities obliged to maintain complete books of account, pursuant to the Accounting Act, are required to prepare annual financial statements on their activities, including the balance sheet, profit and loss account and additional information. The reports must be drawn up in accordance with the models annexed to the Act. Such an obligation is also imposed on entities which have independently selected the full accounting books as the method of recording their activity. Financial reporting to entities whose annual financial statements are audited by an auditor also includes a cash flow statement and a statement of changes in equity.
The possibility of preparing a simplified financial statement concerns primarily small and micro entities which, for the year of preparing the financial statement and in the year preceding the financial year, did not exceed at least two of the three sizes listed in the Accounting Act:
a) PLN 17,000,000 – in the case of the total assets of the balance sheet as at the end of the financial year,
b) PLN 34,000,000 – in the case of net revenues from the sale of goods and products for the financial year,
c) 50 persons in the case of average annual employment, converted into full-time units.
Simplified reporting is also available for non governmental organisations (NGOs). These are all entities which are not public administration units or bodies and whose activity is not aimed at generating profit (Article 4, paragraph 1 of the Act on Public Benefit Activity and Volunteerism).
In addition to the complete and simplified financial statements, there are other less complex accounting models. The first example of simplified accounting is the Record of Revenues from Business Operations. Such records shall be kept for each tax year separately. It does not require recording costs. The second example of simplified accounting is dedicated to companies from the SME sector or sole proprietorships. We are talking about the Revenue and Expenditure Tax Book (PKRiP), which may be kept by entities meeting two conditions at the same time:
sales revenues for the previous year were lower than the equivalent of EUR 2 million;
are taxed on a general basis (18% and 32%) or on a straight-line basis (19%).
The template, necessary instructions and legal requirements concerning PKPiR are set out in the Ordinance of the Minister of Finance.
To sum up, the main features of the financial statements are: comprehensibility of the message, usefulness and relevance of information, reliability, neutrality, completeness, comparability and continuity of recording. Elements of financial statements prepared by business entities may differ, but the format of the document and the assumptions are regulated by law.