Annual Financial Statements and Accounting Principles

Annual Accounts and the True Image Principle

The annual accounts comprise the balance sheet, the income statement, the statement of changes in equity, the cash flow statement, and the notes to the financial statements. The annual accounts must be drawn up clearly so that the information provided is understandable and useful to users making economic decisions. They must show a true and fair view of the assets, financial position, and results of the company.

Information Requirements for Annual Accounts

• Relevant: When it is useful for making economic decisions.
• Reliable: When there are no material errors and the information is neutral.
• Integrity: This is achieved when the financial information is comprehensive, containing all data that can influence decision-making without any significant omission of information.
• Comparability and Clarity: Accounting must be understood so that the annual accounts can be compared over time for the same company, as well as between different companies at the same time. This allows for the comparison of the situation and profitability of companies and involves similar treatment for transactions and other economic events occurring in similar circumstances.
• Clarity: Based on a reasonable knowledge of economic activities, accounting, and corporate finance, users of financial statements should be able to form judgments that facilitate decision-making through a diligent examination of the information provided.

Core Accounting Principles

1. Company in Operation

It is considered, unless there is evidence to the contrary, that the management of the company will continue in the foreseeable future.

2. Accrual Principle

The effects of transactions or economic events must be registered when they occur. We ascribe them to the financial year to which the annual accounts relate; expenditures and income affect this exercise regardless of the date of payment or collection.

3. Consistency Principle

Once an approach is adopted among available alternatives, it must be maintained over time and applied uniformly to transactions and other events and conditions that are similar, as long as the assumptions that led to the choice are not altered. If these assumptions change, the approach taken at the time may be modified; in this case, those circumstances must be stated in the report.