The annual report is your business card

What does the annual report say about a company?

The annual report is required by law from every entity registered in Estonia – companies, non-profits and foundations.

For every company, the annual report is a business card.

It is a public document, open to anyone – the authorities, business partners, competitors and anyone else who is interested.

Filing it on time shows that the company is reliable and keeps its commitments.

The annual report shows how profitable a company is, whether it is sustainable and purposefully run, how innovative it is, what risks it takes, and whether it will last.

What to keep in mind before preparing the annual report

Your books must be organized, correct and ready for year-end. What does that mean?

• The accountant has been given, or has access to, everything they need.
• The accountant has recorded every transaction correctly and fairly in the general ledger.
• Every general ledger balance has been checked, reconciled, counted where needed, and corrected where necessary.

Management gets all the data it needs from the books, and answers to its questions.

Check your details in the e-Business Register

• Share capital and whether it has been paid in.

Recommendations:

• If the company was set up without paying in the share capital, find a way to pay it in. There are several ways to do this – ask us if you need advice.
• When setting up a new company, choose a sensible amount of share capital. Note: at the end of the financial year, a private limited company’s equity (net assets) must be at least half of its share capital, and at least €2,500 in total.
• Management board members, shareholders, supervisory board members, beneficial owners.
• The registered address.
• VAT registration status.
• The financial year. The usual financial year is 12 months matching the calendar year (January–December).
• The first and last financial year may be up to 18 months long.

Note: if the financial year does not match the calendar year, keep the filing deadline in mind while preparing the report!

Note: if the wrong financial year was chosen by mistake, it may be worth changing it.

Steps in preparing the annual report

1. Prepare the financial statements and enter them in the e-Business Register

The financial statements consist of 4 main statements plus notes. The main statements are:

• balance sheet
• income statement
• cash flow statement
• statement of changes in equity

Small companies prepare 2 main statements plus notes:

• balance sheet
• income statement

Some notes are mandatory. Most of them the accountant chooses, to give more detail about the amounts shown in the balance sheet and income statement.

When choosing notes, the principle of full disclosure applies: the report must give all the information needed for a true and fair view of the entity’s assets, liabilities, equity and operating result.

Non-profits and foundations must prepare all 4 main statements plus notes.

2. Management report – management’s overview of the company, its activities, the financial year and its plans

The management report is a great chance to sum up the company: what it does, its plans and goals, the progress it has made, and any setbacks or financial difficulties.

It is also a great way to give business partners more information and earn their trust. It can describe the company’s vision, mission and strategy. It can also say something about business partners.

What to cover in the management report:

• When the company was founded or started operating
• The company’s main and secondary fields of activity
• Significant events and directions during the financial year
• Management’s assessment of the year’s results
• Plans for the future For example: if the company’s net assets do not meet the requirements, describe the steps and plans for raising them – a change of direction, revenue growth, more profitable operations, owner contributions to equity (including share premium), building reserves, and so on.
• Whether the company is a going concern

When to write “the company” and when “the business owner”? There is no fixed rule.

Our advice: if the owner, the management board member and the only employee are all the same person, “the business owner” fits just as well.

3. Audit

Note: check the audit and review thresholds!

The key figures are sales revenue, total assets and headcount.

A hot topic right now is the state revising (raising) the audit thresholds. The number of companies needing an audit has grown, while auditors have only so many hours – which is why in past years many companies have missed their filing deadline.

When an audit is mandatory, the sworn auditor’s report must be attached to the annual report.

An audit or review is mandatory if at least 2 of the indicators exceed these thresholds:

Audit thresholds:

• sales revenue or income of €4,000,000
• total assets at the balance sheet date of €2,000,000
• an average of 50 employees

Review thresholds:

• sales revenue or income of €1,600,000
• total assets at the balance sheet date of €800,000
• an average of 24 employees

An audit or review is mandatory if at least 1 of the indicators exceeds these thresholds:

Audit thresholds:

• sales revenue or income of €12,000,000
• total assets at the balance sheet date of €6,000,000
• an average of 180 employees

Review thresholds:

• sales revenue or income of €4,800,000
• total assets at the balance sheet date of €2,400,000
• an average of 72 employees

An audit is mandatory for every public limited company with more than two shareholders, and for the other entities listed in § 91 of the Auditors Activities Act.

The review thresholds for foundations are set out in § 92 of the Auditors Activities Act.

4. Approve and sign the annual report

The management board and the owners must review and approve the annual report before signing it. Ask questions if anything is unclear!

One management board member is enough to sign the annual report.

5. Prepare the proposal or resolution on distributing the profit or covering the loss

If there is a profit, propose whether to pay dividends, and how much.

If there is a loss, propose what it will be covered from.

If you wish, prepare both the proposal and the resolution.

6. File the annual report – and mind the deadline

You can file the annual report as soon as the management board has signed it, or choose a later date on which it becomes public. The latest date you can choose is the filing deadline itself.

Note: every annual report must be filed on time, that is within 6 months of the end of the financial year.

For most companies the deadline is 30 June. Our advice: check your financial year in the e-Business Register!

If the annual report is filed late, the Business Register can fine the company without warning. Fines range from €200 to €3,000.

If the report cannot be filed for reasons outside your control, you can apply to the Business Register for an extension. The reason has to be a good one.

If the annual report is never filed, the Business Register can fine the company or strike it off the register.

7. Restoring a company to the register

If the registrar has struck a company off, you can apply to have it restored within three years.

Restoring a company takes time and is often complicated.