Limited liability company in Poland – financial statements

Running a company in the form of a limited liability company in Poland entails the obligation to prepare the financial statements for the financial year. The obligation to prepare the financial statement, its elements and main principles are analysed by Paweł Dyrduł, associate lawyer from Polish law firm KG Legal Kiełtyka Gładkowski Professional Partnership with its registered office in Krakow.

Limited liability company

Limited liability company (Ltd.) is one of the legal forms provided for conducting business activity in Poland. It is a share-holding company and therefore has legal personality. The establishment, operation and liquidation of this company are governed by the provisions of the Act of 15 September 2000 Commercial Companies Code. It is regulated in articles from 151 to 300 inclusive.

Obligation to prepare the financial statement

The legislator in the Act of 29 September 1994 Accounting Act imposed on Ltd companies the obligation to prepare the financial statements on the closing date of the accounting books (last day of the accounting year), which is usually the last day of the calendar year. Such a financial statement has to be approved by the Management Board no later than 6 months from the balance sheet date (Article 53 of the Accounting Act ), namely by 30 June.

Mandatory elements

The Accounting Act in Art. 45.2 contains a closed catalogue which lists the individual components of the entity’s financial statements. They are:

• Balance sheet – the basic element of the financial statement, it represents what a company owns (assets) and the source of its financing (liabilities)
• Income Statement – shows the effectiveness of each business activity and it includes the financial result
• Additional information, including the introduction to the financial statement and the additional information and explanations – it contains the data and the explanations of other components of the financial statement.

Additional mandatory elements

If a company reaches or exceeds two of the values which are specified in the Polish Accounting Act (article 64.1.4.), it may have to be also obliged to include a cash flow in its financial statement (a document which shows cash flows in the company) and the statement of changes in home equity (it shows changes in home equity which took place between the last and the current accounting year). These values are:

• the average of annual employment was at least 50 full-time jobs;
• the total assets of the balance sheet at the end of the financial year amounted to 2,500,000 euros, being an equivalent in the Polish currency;
• net sales of goods, products and financial operations for the financial year were equivalent to 5,000,000 euros, being an equivalent in the Polish currency;

Upon reaching or exceeding two of the three of the specified values, in addition to completing the financial statement with additional items, it will be subject to mandatory auditing by the statutory auditor.

Report of company’s activities

In addition to the components of the financial statements of the limited liability company, the Management Board of the company is obliged by article 49 of the Polish Accounting Act to prepare a report on the company’s activities. This report is annexed to the financial statement. It should include in particular:

• Information about the company’s financial condition and financial standing;
• Identification of risk factors in the company and description of risks;
• Information about the events that had a significant impact on the company’s business in a current financial year;
• Predictions for the development of the company;
• Major achievements in research and development;
• Current and anticipated financial position;
• Acquisition of own shares.

Main principles

The theory of accounting and finance has developed two basic principles that should be distinguished by all the financial statements of business entities. They are:

• accrual principle (Article 6.1 of the Polish Accounting Act) – pursuant to which all accounts receivable and costs incurred for a current financial year should be recognized in accounting books irrespective of the time of payment;
• follow-up rule (Article 5.2 of the Polish Accounting Act) – namely the assumption that the company will continue its activity in the future.

Typical characteristics

Apart from the aforementioned rules, there are also drawn up the characteristics of the entity’s fair financial statement. These characteristics are:

1. Reliability – i.e. the financial statement does not contain material mistakes, the data is consistent with the actual state;
2. Understandability – i.e. the financial statement is understandable to the recipients;
3. Completeness – i.e. the financial statement contains all elements and information;
4. Comparability – i.e. the financial statement allows comparison with other periods and other entities;
5. Verifiability – i.e. the financial statement can be verified;
6. Timeliness – i.e. the financial statement is prepared on time;
7. Continuity – i.e. the financial statement assumes continuation of the business.