What is the Difference Between Statutory Accounts and Management Accounts?
Author: Russell SmithMarch 8, 2018
Statutory accounts and management accounts aren’t just pieces of jargon meant to confuse you. They have real significance in the world of financial management. In this blog, our accountants explain what they are and what the difference between them is, in simple terms.
Statutory accounts and management accounts are benchmarks in the industry of economics and business management. Their purpose is to monitor financial movement and allow for reporting on current progress, previous successes/failures and provide forecasts for the future.
To those new to business management, or who lack much experience in finance management, this probably all sounds like a bunch of useful accounting buzzwords.
Like most accounting practices, statutory accounts, management accounts, and the difference between them can sound quite complex and intimidating. However, like most accounting practices, once simplified, they are actually quite easy to understand.
At Russell Smith Chartered Accountants, we like to make things simple for you. Our mantra has always been to make financial and business management easier, and today we hope we can do so again.
Let’s start at the beginning, looking at both statutory accounts and management accounts, and identifying exactly what their purpose is:
What Are Statutory Accounts?
A statutory account is a report that is prepared annually by limited companies with one simple goal: to break down and showcase financial actions taken by the company in that year.
A statutory account does not include every last bit of detail, such as unique expenses or invoices. Instead, it is produced to form a statement of the company’s overall spending.
Generally, you would include a profit and loss report and a balance sheet. The profit and loss report simply displays turnover and profits, while the balance sheet also references the total value of assets, capital gains and business credit.
These reports are used both internally and externally, although the primary reason for producing statutory accounts is to share annual financial information with shareholders and HMRC.
Key Features of Statutory Accounts:
- Statutory accounts are formatted generically, following a generic format to make them easy to understand for shareholders and HMRC.
- These reports are mandatory for all limited companies and will be requested by HMRC. They may also be included as part of contracts if your company has shareholders.
- Statutory accounts are prepared for a specific time and only completed once a year.
- Statutory reports offer an invaluable overview of business finance. This type of accounting is great for helping the business owner understand day-to-day operational costs, displaying profit that includes all adjustments made at the end of the year. Deductions, taxes, payroll, etc.
What Are Management Accounts?
The clue here is in the name: management accounts.
These reports are produced to allow high-ups in a business to make decisions based on the financial position of the company. They detail specific data that is useful for the management’s current needs. Such as showing dips in specific sales or rises in certain types of expenses.
Management reports are exclusively used for internal decision making and are rarely given to shareholders, unless specifically requested or the company is struggling in certain financial areas. Many corporations opt to create management account reports quarterly, monthly, or even weekly as methods of tight financial control.
Key Features of Management Accounts:
- here is no set format or data requirements for a management account. A management account report can look and include whatever you decide.
- Management accounts do not need to be completed to official time frames or deadlines, only those stipulated by the business.
- These reports are not mandatory. In fact, you may never actually produce one.
- A true reflection of where the business is at financially, management accounts help plan for the future, allowing you to adjust the direction your business is taking based on specific successes and failures. They are an invaluable resource when it comes to making choices about strategy and direction.
Want to discover more about complex and intimidating accounting practices? We’ve got plenty of blogs that can help you become masters of your business’ money. Why not visit one of these blogs offering insights from our accounting experts?
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- How to work out your self-employed rate
- Non-tax deductible corporate expenses of 2018
What Are THe Differences Between Statutory Accounts and Management Accounts?
Now we’ve taken the time to understand what both types of accounts are, we can compare them to see what the key differences between statutory accounts and management account are.
Knowing the difference between both reporting practices helps business owners understand how best to utilise them for financial management and future success:
- Management accounts can be designed and formatted however you like, but statutory accounts must follow specific layouts.
- While using management accounts is highly recommended, they are not mandatory. You decide if you want to produce management accounts and how many times a year you want to do. This is unlike statutory accounts, which must be produced annually.
- Statutory account reports provide an overview of all finances while management accounts get into gritty details. Statutory, from a technical accounting point of view, allows the business owner to see exactly what the end result of their efforts actually is, as all information is adjusted for tax purposes. Management accounts, on the other hand, allow for greater levels of focus and a more in-depth analysis of your business
- Both statutory accounts and management accounts can help review your current financial situation, but management accounts are much better at providing forecasts and planning for the future. These reports can be tailored to specific timeframes and types of income/expense to hone in future income and spending. You also don’t really want to run your business from the statutory accounts. Looking at your finances less than once a year is never a good idea.
- A management account report isn’t made to look good for investors or HMRC — it is simply raw data, offering a true depiction of a current financial state. Statutory accounts, however, are clean and well presented. This isn’t to say they are inaccurate, but they definitely more refined.
Struggling to get a firm grip on your business’ financial management? Our small business accountants from the UK are experts in both money and business processes. We can offer a bespoke support package suited to your unique needs. Get in touch with Russell Smith Chartered Accountants today and arrange your free, no-obligation consultation.