14 Common Errors in Financial Statements

Errors in Financial Statements

Errors in Financial Statements you would assume would be rare. This is not the case. Here we go through the most common errors in Financial Statements that you need to be aware of. Are your Financial Statements correct? Or do they contain errors?

Errors in Financial Statements for small limited companies

The errors highlighted below are applicable for all limited companies who qualify as a small company. Typically small companies have turnover under £10.2 million. See our blog small company limits for the full guide.

These are our typical clients so we have expertise on these businesses. Also, these clients must report their accounts to Companies House. It is therefore possible for anyone to view them and to see if there are errors in Financial Statements.

Financial Statements explained

We understand that most businesses are run by individuals who aren’t accountants. We have therefore highlighted the errors in the order they will appear in the Financial Statements.

The first thing to do is to obtain a copy of your Financial Statements:

  • To do this log on to Companies House,
  • Select find company information,
  • Then select start now and
  • Enter the company name in the search box.

You can then download your accounts. If you have any problems see our blog Companies House Accounts.

Error 1: Financial Statements filed in the incorrect format

A medium sized company can’t file under the small company framework. A small company can’t file under the micro company framework.

Yes this would seem obvious but it does happen. Only recently we discovered a firm of local Chartered Accountants had mistakenly filed micro accounts for one of their clients. The business in question was over 4 times the turnover limit and 3 times the employees limit.

How to check yours are correct? At the bottom of the balance sheet page it will state that the Financial Statements have been prepared in accordance with…micro-entity provisions or …Companies Act 2006 relating to small companies.

See our guides to Micro Entity Accounts and Small Company Accounts to see what regime you qualify for.

The following errors in Financial Statements only relate to those filed under the small company regime.

Errors in Financial Statements – company information page

Error 2: Company Secretary is blank

On the company information page it should disclose the company secretary. This should never be blank.

Either the company secretary name should be shown. Alternatively if no company secretary has been appointed then reference to the company secretary should therefore be removed.

Error 3: Directors, Secretary and Registered Office not up to date

On the company information page it should show the information as at the date of signing the accounts. Therefore directors appointed after the year end should be shown. Directors resigned after the year end should be removed.

Errors in Financial Statements – balance sheet page

Error 4: Share capital doesn’t agree to Companies House

At the bottom of the balance sheet it will state called up share capital. This is the number of shares in issue and it will show this years and last years total.

If the total has changed, does this agree to Companies House? There should then be a filing of form SH01 visible on the recent filing history on Companies House. Form SH01 is the document sent to Companies House if new shares have been issued.

To view your shares issued with Companies House you will need to view the confirmation statements or annual returns. Ensure the total on these documents is the same as your balance sheet.

Errors in Financial Statements – notes to the Financial Statements

Error 5: Accounting policies are incorrect

After the balance sheet are the notes to the Financial Statements.

Typically note 2 of the accounts are the accounting policies and here we see many incorrect or unnecessary policies.

The main culprits for these are as follows:

  • Turnover note – stating that it excludes VAT when the company is not registered for VAT.
  • Tangible fixed assets note – stating that depreciation is provided at the following rates but then underneath it is blank.
  • Freehold property depreciation – stating this as 0% or Nil. Property should be depreciated at a minimum of 2%. Only land can be Nil.
  • Hire purchase and leasing commitments – stating this note when it isn’t required. If you don’t have any assets under hire purchase or any on lease then don’t include this policy.
  • Duplicated contradictory notes – we often see a note which will say for example patents and licences are amortised over useful life of nil years. Then a couple of notes down it’ll say that patents and licences are amortised at 4% on cost. Which is it?
  • Financial instruments note – most businesses we deal with don’t have any financial instruments yet this note is often disclosed in the accounts unnecessarily.

Error 6: Employees and Directors disclosure

Directors are often included in this total which is usually incorrect.

Only Directors which have a contract of employment should be included. Therefore if the Director is working full time and is only earning approx. £8k per annum they are not an employee. And therefore should not be included.

See our blog Are Directors Employees?

Error 7: Freehold property and investment property

We often see freehold property and investment property mistakenly accounted for.

Freehold property is property which the business uses to trade from. It could be a storage depot, a warehouse, an office, a shop but basically it is a building the business owns and uses itself.

Investment property is property which has been purchased to rent out or bought to develop and then resell. The business does not operate from this property.

The definitions are important because the accounting treatment under the small company regime is different.

Freehold property must be depreciated every year whereas investment property must be revalued every year. Therefore as the amounts will differ the classification should be correct.

Error 8: Showing a breakdown of Debtors and Creditors

A detailed breakdown of creditors, if shown, will disclose taxation. We therefore don’t recommend disclosing this as it will give away a rough idea of your profits.

The corporation tax rate is currently 19%. So if you are showing taxation of £10,000 you are stating profits in the region of £52,000. If you are disclosing taxation of £nil then you are indicating that you may have made a loss. This then may even put off 3rd parties from trading with the company.

Most businesses would not want to let their competitors, customers, suppliers or even their employees know their profits. So why show this if you don’t have to.

If you file abridged accounts as recommend in our blog then this information is not shown.

Tip: If your accountant has not filed abridged accounts ask them why not? If they don’t give a satisfactory explanation we would recommend that you change accountants. Appoint an accountant who understands that you don’t want to disclose sensitive financial information unnecessarily.

Tip: If your Financial Statements do state a breakdown of debtors and creditors ensure that there are no negatives in the breakdown. A negative debtor must be disclosed as a creditor and a negative creditor must be disclosed as a debtor. This may seem obvious but again we see this mistake way too often.

Error 9: No secured debts note

A business which has any security on its debts must disclose a secured debts note. Typically overdrafts, bank loans, hire purchase agreements will all have some kind of security attached.

As well as stating the debt, the nature of the security must also be disclosed. This is often overlooked.

For example, if there is a bank overdraft or a hire purchase creditor it will state something similar to the following ‘the bank overdraft is secured by personal guarantees’ or the ‘hire purchase creditor is secured on the assets to which they relate.’

Error 10: Related party disclosures

Under the old reporting framework if a Director was involved with another company and there was trade with this business, then this would need to be disclosed.

This is no longer required. Under the new rules this would only be disclosed if the amounts are not at normal market conditions. There is no formal definition of this but most deem it to mean ‘arms-length basis’.

Therefore if you are disclosing any related party transactions you are effectively stating that these transactions weren’t at normal market conditions.

Most businesses trade at normal market conditions even with related parties therefore this disclosure is no longer required for the majority of businesses.

Error 11: Ultimate controlling party

Under the old reporting framework if anyone owned over 50% of the company then it must be disclosed.

This is no longer required. It is only required if the ultimate controlling party is another business and not an individual.

There is no need for this disclosure any more with the introduction of the persons of significant control register. This effectively does this requirement. We have seen many errors with these filings so to check your register is correct read our blog Persons of Significant Control.

Error 12: Disclosing directors loan account

The directors loan account only needs to be disclosed if the balance is overdrawn.

If it is in credit it does not need to be shown.

Error 13: Disclosing your dividend income

If disclosing the taxation as in error 8 isn’t bad enough. Letting everyone know how much you earn from the business is far worse.

Disclosing your dividends is not required. You may end up with interesting pay reviews with your employees if you’ve disclosed your earnings from the business.

Error 14: Filing a profit and loss account

Every accountant should know that small companies are exempt from filing a profit and loss account.

Under the old framework this was known as abbreviated accounts. Under the new rules it is known as filleted accounts.

If your accountant has filed your profit and loss account then you really should be saying goodbye and changing accountants. There is no excuse for getting this wrong.


We would agree that disclosure errors in Financial Statements aren’t exactly worth losing sleep over. You may even think does any of this really matter?

Most owner managed businesses require debt at some point, be it for a new business asset or even their personal mortgage. As part of the application process the accounts are always requested by the bank or lender. Would you lend thousands of pounds, potentially even hundreds of thousands, based on a set of accounts with obvious errors?

If you worked for HMRC and you were deciding which company to open an investigation on? Do you choose the accounts which have no obvious errors or the accounts with obvious errors?

The above errors in Financial Statements are only disclosure errors. There is no way of actually checking that the numbers and the tax is correct without having all the paperwork.

However if your accounts show any disclosure errors it does cast doubt over the validity of the actually figures. It demonstrates that your accountant either has a lack of understanding of the rules or a lack of care in applying the rules.

Accountants fees generally aren’t cheap and yet, can you really still trust that the numbers they have provided are correct? Is the tax correct? And have they really considered all of the tax planning opportunities available?

As Chartered Accountants we not only know the disclosure requirements but also tax saving opportunities. To request a fixed fee quote see our contact details.

DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer

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