Financial reports and the law

 

A financial report (or statement or account) is a formal document setting out the financial activities of a business, person or other entity.

They are used by potential investors, creditors and the taxation authorities to assess the status of the business. As such, it is important that they are as accurate as possible.

There are four main types:

  • Balance sheet – this sets out a business’s assets, liabilities and general financial position
  • Profit and loss – this sets out a business’s gross and net income and expenses
  • Statement of cash flow and liquidity – this sets out a business’s cash flow
  • Statement of retained earning – this sets out the amount of money retained in a business over a particular period – e.g. an accounting year

You can learn more about businesses’ obligations and compliance on our company law pages.

Misrepresenting financial reports

The law has been designed to deter those who are tempted to submit fraudulent financial reports and there can be severe consequences for doing so.

The most famous example is probably the collapse of Enron in the early 2000s, which had committed substantial fraud over many years. Many of its senior executives faced criminal charges as a result.

Fraudulent financial reporting could occur if, for example, a business misrepresents their income on a profit and loss sheet. This could be done intentionally in order to mitigate tax liabilities.

A business might also fraudulently misrepresent their profit figures when attempting to sell their business. They could make the profit figures artificially high in order to make the business seem more attractive to potential purchasers.

You could face a number of legal sanctions if you make a fraudulent financial report. The law can impose both civil and criminal sanctions on someone who is found to have done so. If you are unsure about your legal obligations, it is crucial to instruct a solicitor to advise you.    

If you would like to obtain legal advice and information on financial reports and fraud, Contact Law can put you in touch with a local specialist solicitor free of charge. Please call us on 0800 1777 162 or complete the web-form above to speak to an advisor.

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