Skip to content
Menu
Join our waitlist
TaxPost is in invite-only testing. Join our waitlist to hear when you can order.

How do going concern and events after the year end affect a micro-entity's accounts?

Some later events change the figures.

Accounts assume your company will carry on, unless you intend to close it or stop trading, or have no real choice. Later events change the figures if they show how things stood at the year end. Deciding to close before you approve the accounts changes the whole basis.

Published

At a glance

Applies to
Every set of
What to check
Whether you intend to close the company or stop , or have no real choice. Look at least 12 months ahead from the date you approve the accounts
Events after the year end
Adjust the amounts only for events that show how things were at the . A decision to close is different: see the last row
Dividends declared after the year end
Not a debt at the year end
If you decide to close before approving them
The accounts cannot be prepared on a

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

What to do

  1. Look ahead before you approve the accounts. Look at least 12 months ahead from the date you approve them. Ask whether you intend to close the company or stop , or have no realistic alternative.

  2. List what has happened since the year end. Include everything up to the day you approve the accounts.

  3. Sort each event. If it shows how things stood at the , adjust the figures. If it reflects something that arose later, leave them alone.

  4. Leave out dividends declared after the year end. They are not a debt at the year end.

  5. Approve and sign. The board of directors approves the accounts, and a director signs the .

Sources

How it works

Accounts assume your company will carry on

Accounts are normally prepared on the basis that your company is a "". This means it will carry on in for the foreseeable future.

The standard gives the check to "management". In a one-director company, that is you. The going concern basis is right unless you intend to (close) the company or stop , or have no realistic alternative.

You look at all the information you have about the future. That means at least 12 months from the date you approve the accounts, not from the . Because the window runs from the approval date, approving later means looking further ahead.

For example

Bramley Studio Ltd's year ends on 31 December 2026. Say Priya approves the accounts on 31 March 2027.

She looks at least as far ahead as 31 March 2028.

If the going concern basis does not apply, the accounts must be prepared on a different basis. The standard does not say what that basis is. Get advice from an accountant before you prepare those accounts. If the company is being wound up, the accounts must also say so.

None of the four notes must give is about going concern or events after the year end. You may add a note, but you must then take account of the rules for it.

Sources

The detail The exact rules

paragraph 2.7: financial statements are normally prepared on the assumption that the is a going concern and will continue in operation for the foreseeable future. If management intends to liquidate the entity or cease trading, or has no realistic alternative but to do so, the financial statements "shall be prepared on a different basis". Paragraph 3.3: management shall assess whether the going concern basis is appropriate. It is appropriate unless management intends to liquidate the micro-entity or cease trading, or has no realistic alternative. Management takes into account all available information about the future, which is at least, but is not limited to, 12 months from the date when the financial statements are authorised for issue.

Neither FRS 105 nor the accounting principles in SI 2008/409, Schedule 1, Part 2 name or describe that different basis. Schedule 1, paragraph 11 presumes the company is carrying on business as a going concern. Paragraph 10(2) lets directors depart from a principle for special reasons, giving particulars, reasons and effect in a note. Regulation 5A says nothing in Schedule 1 requires a micro-entity's accounts to contain notes, except the paragraph 57 note.

Companies Act 2006, section 396(A1)(e): the accounts must state, where appropriate, that the company is being wound up. FRS 105 paragraph 3.13A(e) repeats this. FRS 105 paragraph 6.2 lists the four required notes. Paragraph 1.3: a micro-entity that adds information shall have regard to any requirement that relates to it.

The Periodic Review 2024 amendments apply for beginning on or after 1 January 2026. They replaced Section 2 of FRS 105 in full, including paragraph 2.7. The said the changes to Section 2 are not expected to result in significant changes to existing practice. The September 2024 edition quoted here already includes them. The February 2026 amendments to FRS 105 change paragraphs 1.10 and 10.13 only.

Sources

Which events after the year end change the figures

An event after the year end counts if it happens before you approve the accounts. It still counts if you have already announced your profit. There are two kinds:

  • Adjusting events give evidence of conditions that already existed at the year end. You change the figures for them.

  • Non-adjusting events reflect conditions that arose after the year end. You do not change the figures.

The accounts show the position on the last day of the year. An tells you more about that day, so it belongs in the figures.

The standard gives these examples of adjusting events:

  • legal action settled after the year end that confirms your company already owed something at the year end

  • a customer going bankrupt after the year end, which usually confirms a debt was already lost

  • selling after the year end, which may show what it was worth at the year end

  • finding fraud or errors that show the accounts are wrong

A fall in the value of investments after the year end is a .

For example

Say a customer owed Bramley £2,000 at 31 December 2026, then went bankrupt in February 2027. None of it will be paid.

Profit before tax
£27,500
Less the lost debt
−£2,000
Adjusted profit before tax
£25,500

A later bankruptcy usually confirms the loss existed at the year end, so the 2026 figures change.

Sources

The detail The exact rules

FRS 105 paragraph 26.2: events after the end of the reporting period are events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. There are two types: (a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events); and (b) those that are indicative of conditions that arose after it (non-adjusting events). Paragraph 26.3: they include all events up to the date of authorisation, even if they occur after the public announcement of profit or loss or other selected financial information. Paragraph 26.4: a micro-entity shall adjust the amounts recognised to reflect adjusting events. Paragraph 26.6: it shall not adjust for non-adjusting events.

Paragraph 26.5 examples of adjusting events: (a) the of legal action that confirms the micro-entity had a present obligation at the end of the reporting period; (b) information that an asset was at the end of the period, for example (i) the bankruptcy of a customer, which usually confirms that a loss existed on a trade receivable, and (ii) the sale of inventories, which may give evidence about their selling price at the end of the period for the purpose of assessing impairment; (e) the discovery of fraud or errors that show the financial statements are incorrect. Paragraph 26.7(a): a decline in market value of investments after the period end is a non-adjusting event.

Sources

A dividend declared after the year end is not a debt

If your company declares a dividend after the year end, it is not shown as owed at the year end. That is because no obligation to pay it existed on that day. A debt in the accounts must come from a present obligation that already exists because of past events.

A dividend can only be paid out of profits available for the purpose. Whether it is lawful is tested against the "", normally your company's last annual accounts.

For example

Bramley's creditors at 31 December 2026 are £9,700. Say Priya declares a dividend of £10,000 on 20 March 2027.

The dividend is not added to the creditors at 31 December 2026, which stay at £9,700.

Sources

The detail The exact rules

FRS 105 paragraph 26.10: dividends declared to holders of instruments after the end of the reporting period are not recognised as a at the end of the period, because no obligation exists at that time. Paragraph 2.14: a liability exists only if the micro-entity has an obligation to transfer an economic resource, and it is a present obligation that exists as a result of past events. Companies Act 2006, section 830(1): a company may only make a distribution out of profits available for the purpose. Section 836: whether a distribution may be made is determined by reference to the relevant accounts, which are the company's last annual accounts, except where interim or initial accounts are used. FRS 105 Appendix III says any entity may refer to Technical Release 02/17BL, issued by the ICAEW and ICAS, in determining profits available for distribution.

Sources

Deciding to close after the year end

You might decide, after the year end but before approving the accounts, to close the company or stop trading. If so, the accounts cannot use the going concern basis. The same applies if you have no realistic alternative.

Worse results after the year end may lead to that decision. If the going concern basis no longer fits, the standard calls for a fundamental change in the basis of accounting.

For example

Say Priya decides in March 2027, before approving the 2026 accounts, to stop trading.

The 2026 accounts cannot be prepared as a going concern, even though Bramley traded all through 2026.

If instead

The company is also being wound up. The accounts must then say so.

Sources

The detail The exact rules

FRS 105 paragraph 26.8: a micro-entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period that it intends to liquidate the micro-entity or to cease trading, or that it has no realistic alternative but to do so. Paragraph 26.9: deterioration in operating results and financial position after the reporting period may lead management to that decision. If the going concern basis is no longer appropriate, the effect is so pervasive that the section requires a fundamental change in the basis of accounting.

Sources

Consequences

If you get it wrong

Directors must not approve accounts unless they are satisfied the accounts give a . Approving accounts that break the law can be an offence. It applies to a director who knew, or was reckless about it, and did not take reasonable steps to prevent it. The penalty is a fine.

If you miss an , the amounts in your accounts are wrong. If that changes your profit, your Corporation Tax may be wrong too. That is because for tax follow the accounts.

Sources

Less common situations

Your tax figure changes. for Corporation Tax follow normal accounting practice, unless tax law requires an adjustment. So an can change the tax figure too. The tax in your accounts uses rates and laws in place, or substantively in place, by the year end.

You find an error or a fraud. If it shows the accounts are wrong, it is an adjusting event, and you correct the figures.

Sources

The detail The exact rules

Corporation Tax Act 2009, section 46(1): the profits of a must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law. paragraph 26.4 requires adjusting events to be reflected in the amounts recognised. Paragraph 24.6: a current tax liability is measured using the tax rates and laws that have been enacted or substantively enacted by the reporting date. Companies Act 2006, section 393(1): directors must not approve accounts unless satisfied they give a true and fair view. Section 414(1) and (2): the board approves the accounts, and a director signs the balance sheet on its behalf. Section 414(4) and (5): the offence and the fine.

Sources

Worked example: Bramley Studio Ltd

Bramley Studio Ltd's year runs from 1 January to 31 December 2026. Its profit before tax is £27,500 and its tax is £5,225. At 31 December 2026 its are £31,900, its due within one year £9,700 and its net assets £27,600. Say Priya approves the accounts on 31 March 2027. Before then, say two things happen.

Events before the accounts are approved

  • Customer owing £2,000 at the year end goes bankrupt, February 2027; none will be paid

    Kind
    Adjusting
    Effect on the 2026 accounts
    The debt is written off: profit before tax, current assets and net assets fall by £2,000

    A later bankruptcy usually confirms the loss existed at the year end; say it does here

  • Dividend of £10,000 declared, 20 March 2027

    Kind
    Non-adjusting
    Effect on the 2026 accounts
    Not shown as owed

    No obligation existed at 31 December 2026

Sources

Effect on the 2026 figures

  • Profit before tax

    £27,500

    After
    £25,500

    £27,500 − £2,000

  • Current assets

    £31,900

    After
    £29,900

    £31,900 − £2,000

  • Net assets

    £27,600

    After
    £25,600 before any tax change

    £27,600 − £2,000

  • Corporation Tax

    £5,225

    After
    To be worked out again

    Trade profits for tax follow the accounts

  • Creditors due within one year

    £9,700

    After
    £9,700 before any tax change

    The dividend adds nothing; the tax figure inside creditors may change

Sources

The dividend's lawfulness is tested against the . If Priya had instead decided in March 2027 to stop , the 2026 accounts could not be prepared as a going concern.

Sources

Not covered here

How to prepare accounts on a basis other than , and the tax rules for a lost debt. See dividends and distributable profits and debtors, bad debts and provisions.

Where this comes from

63 official sources. Open a group to see them.

The law 19 sources
HMRC 8 sources
GOV.UK 10 sources
Companies House 2 sources
FRC 24 sources

Want it prepared for you?

We prepare and file your accounts and Corporation Tax return.

Join our waitlistSee what is included