As finance and accounting experts, we make it our mission to understand every term, every regulation and every piece of industry jargon so that we can do the best possible job for our customers.
However, if you’re currently responsible for your own accounting and finance reports, you may very well find yourself a bit bamboozled from time to time.
One of the things we find our customers aren’t often clear on are the main differences between statutory accounts and management accounts.
Although they may sound complicated, their respective definitions and functions are actually pretty simple so we’re here to lay down the facts for you.
What are statutory accounts?
Statutory account reports are prepared once every year by limited companies as per a request from HM Revenue and Customs (HMRC). These are compulsory documents that you will need to produce.
This type of statement provides an overview of overall spending, as opposed to a detailed breakdown of things like specific expenses and invoices.
Instead, a statutory account report will typically include a profit vs. loss report, as well as a balance sheet to reference things like credit, asset value and capital gains.
Although statutory accounts can be used internally to inform progress evaluation and forecasts, they are mainly for external use by HMRC. They may even be written into contracts with external shareholders.
What are management accounts?
Management account statements are not mandatory and will very rarely be used by external bodies. They are internal reports which are produced to help inform and guide senior members of staff in crucial decision-making processes.
A management account statement provides insight into the financial position of the company by detailing specific data in line with the information required at the time. For this reason, these documents follow no particular format guidelines.
There is no specific deadline for this type of report as they are a tool used as and when they are needed – some companies may never produce one. However, many businesses produce them quarterly, monthly or even sometimes weekly as an effective way to make educated decisions about direction and strategy.
A common example of when a management account report might need to be generated is when cash flow problems arise and a company wants to see if there has been a rise in any particular type of expense which could be addressed.
What is the difference between statutory and management accounts?
So, to summarise, here are the main differences between the two types of financial reports:
- A statutory accounts statement is a compulsory report that will be requested HMRC, while some businesses may never need to produce a management account report.
- A statutory accounts report gives an overview of financial activity, while management account reports are more tailored and specific.
- Statutory accounts are used externally, while management account documents are exclusively for internal use.
- Statutory account reports follow a general format, while management account reports can take a more bespoke form.
- Statutory account reports are produced annually, while management account reports can be generated as when required by the business.
If you would like some advice around your finance and accounting, feel free to get in touch with our team of qualified experts by calling 020 3355 4047 or getting a quote on our services.
