These are three commonly misunderstood things!
A generation ago, most limited company accounts were subject to a mandatory statutory audit - a formal check by appropriately certified accounting professionals that the accounts were “true and fair”, with a positive (or otherwise!) endorsement being placed on them by the auditor. Over time (and as statutory audit has, to some extent, had its reputation tarnished by multiple scandals and failures) the thresholds for audit have been raised and raised so that only a tiny fraction of the companies in the UK need one. So 99%+ of the company accounts filed at Companies House are marked as unaudited accounts. This is completely correct and normal! You still sometimes get screening companies, letting agencies and the like saying that they need to see your audited accounts, but they don’t really mean that - they’re almost always just using “audited accounts” as a clumsy synonym for “year-end accounts prepared by an accountant”. So don’t worry about your accounts being audited! If you’ve got a small company, it would be seeing audited accounts that would actually be a red flag.
Abridged accounts are probably the most misunderstood of the three. In fact, it’s clear from what we see being filed at Companies House that lots of accountants don’t understand what they are. Under the previous accounts preparation and filing regime, the FRSSE, the standard set of accounts submitted to Companies House for a small company were Abbreviated Accounts; a set of accounts that excluded the Profit and Loss Account for the year, and included only the Balance Sheet - the snapshot of the financial position at year-end.
Because the words sound similar, many people seem to assume that, under the FRS102 regime that replaced the FRSSE about 10 years ago, Abridged Accounts took the place of Abbreviated Accounts. They did not - they’re a totally different concept. There are two types of abridgement a small company can do, one of which is pointless and need never be used, and one of which is really helpful and should virtually always be used:
- You can abridge the Profit and Loss Account (actually called the Income and Expenditure Account under the current system). That means that you don’t have to give a number for sales revenue, you can just start from the gross profit line. This is a) really weird and b) totally unnecessary, because (as we’ll see), nobody is likely to see this particular document apart from you, your accountant and HMRC (who can ask for whatever information they want anyway).
- You can abridge the Balance Sheet. This has minimal effect on the appearance of the Balance Sheet itself, but means that you can ditch the supporting notes that otherwise give a more detailed breakdown of debtors and creditors. This is incredibly helpful, because those breakdowns can give rather useful information to, for example, competitors. But, it’s done far less frequently than it should be - maybe less than half the time, even. We very often download the accounts of another business, or a potential client, and find that the Balance Sheet has not been abridged, and that there’s a note that - amongst other things - shows the precise corporation tax bill for the year. From that, we can work back and figure out what the profits were, and how much was extracted as dividends. This might be information you’d rather not share with the world! And it could have been omitted very, very easily.
You might think that accountants are just being lazy by not abridging their clients’ Balance Sheets. We don’t think so - because they’re not abridging their own Balance Sheets either! It seems that, 10 years in, many accountants don’t understand the rules.
Did something take the place of Abbreviated Accounts? Yes! Filleted accounts. That’s a set of the full accounts (whether abridged or not abridged), with the Income and Expenditure Account removed. Most (but not all) small companies do fillet their accounts before filing - you occasionally hit the jackpot and find an unabridged, unfilleted set on the record, but it’s fairly infrequent. Finding unabridged Balance Sheets on the public record is the norm, though, when most likely every one of those companies would have abridged it if they’d understood what it meant.
We’ve further changes to the filing regime coming up, and in a couple of years small companies are likely to have to put some Income and Expenditure information on the public record (or perhaps just provide it to Companies House on a confidential basis). But, even then, based on the last 10 years it seems likely that many companies will disclose more than they have to. It pays to make sure that no more information is being displayed at Companies House than is necessary.