Preparing for the 2025 Annual Report: what every company must check to avoid mistakes and poor-quality reporting

The end of the financial year is a moment when all numbers, obligations, and documents must come together. It’s not just a formality – the annual report is a legal responsibility of the board and a public document that defines the company’s credibility in the eyes of banks, the tax authority, and business partners.

A properly prepared report:

• builds trust with investors and banks,

• helps secure financing and leasing on better terms,

• reduces tax risks, and

• protects the board from personal liability.

A poor or misleading report, however, can cause the opposite: distrust, financing refusals, partner doubts, fines, or even the risk of deregistration.

Real-life example

A limited company submitted its 2024 report, showing profit of over €100,000 and plans to pay €200,000 in dividends.

Sounds impressive – but closer inspection revealed very poor quality reporting, including:

• Negative liabilities – debts shown as negative. In accounting, liabilities can never be negative.

• Profit without business activity – sales revenue was only €2,000, while profit came almost entirely from related-party interest income (~€100,000). This indicates financing, not business activity.

• Unrealistic dividend plan – the company had only €100 in its account, yet planned to pay €200,000 in dividends.

• Missing documentation – no loan agreements, no justification for interest rates, and no clear link between balance sheet and income statement.

Such a report does not create value – it damages the company’s reputation.

What every company must check before year-end

1. Fiscal year and reporting obligation

• Confirm your company’s fiscal year length and end date. Most companies use 01.01–31.12, but another period (e.g. 01.07–30.06) is allowed.

• Check the Commercial Register to see when your company was founded and which fiscal year end applies.

• First-year exception: If founded mid-year, the first report can cover up to 18 months (e.g. founded September 2024 → first report may cover 01.09.2024–31.12.2025).

• Reports must be filed within six months of year-end (e.g. 31.12.2024 → deadline 30.06.2025).

Why it matters: Wrong fiscal period causes errors; missed deadlines bring fines and reputational damage.

2. Cash balance

• Ensure the cash account is not negative. Negative cash is a clear error.

• If cash on hand is unusually large, explain where it is held (e.g. in a safe). Large unexplained balances raise tax authority suspicion about undeclared transactions and create theft/misuse risk.

Why it matters: Unrealistic cash balances make reports unreliable and may trigger audits or penalties.

3. Bank balances and Tax Authority (EMTA) balances

• Bank balances in the books must match actual bank statements. Discrepancies indicate errors (e.g. unmatched or duplicate entries).

• Tax balances (VAT, payroll, prepayment account) must match EMTA records. Differences must be explained and corrected.

Why it matters: Banks and auditors rely on these figures. Mismatches quickly erode trust.

4. Receivables and Payables

• All sales invoices must be reflected in receivables. Old unpaid invoices should be assessed – are they collectible or should they be written off?

• All supplier invoices must be shown in payables. Outdated obligations must be corrected.

• At year-end, reconcile ledgers with the general ledger. Investigate discrepancies from the beginning.

Why it matters: Incorrect balances distort the true financial position. Overstating receivables inflates assets; overstating payables exaggerates liabilities.

5. Fixed Assets and Depreciation

• All assets (machines, equipment, vehicles, real estate) must be capitalized, not expensed.

• Depreciation must be calculated in line with law and accounting policy.

• Missing or incorrect depreciation distorts profit and asset values.

6. Inventory control

• If inventory exists, conduct a year-end stock count and reconcile with accounting records.

• Adjust for shortages, losses, or obsolete stock.

• Inventory must be valued at the lower of cost or net realizable value.

Why it matters: Misstated inventory inflates assets and gives a false picture of solvency.

7. Related-party transactions

• All loans to/from owners, board members, or related companies must have written agreements with terms and interest.

• Interest must be recorded; interest-free loans may be seen as hidden profit distribution.

• All related-party balances and transactions must be disclosed in the notes.

8. Leases and other liabilities

• Finance leases must be shown as assets with corresponding liabilities.

• At year-end, split liabilities between short- and long-term parts.

• All loan and lease agreements must be disclosed with terms.

9. Loans from owners and board members

• Loans must be documented with contracts stating amounts, interest, and repayment terms.

• If an employee or board member’s account is negative, reclassify it as a loan.

• Missing agreements or unrecorded interest create legal and tax risks.

10. Vacation reserve

• Companies with employees must calculate unused vacation liabilities as of year-end.

• This includes gross pay and related taxes.

11. Profit, Loss, and Equity

• Ensure income statement profit/loss matches the balance sheet line.

• Previous year’s results must be transferred correctly.

• Monitor equity – if negative or below legal limits, the board must act (capital injection, restructuring, limiting dividend payouts).

12. Explanatory notes

• Notes must explain accounting policies, related-party transactions, loans/leases, tax balances, reserves, and dividend plans.

• Empty or generic notes (“Accounting policy: as per law”) are non-compliant and misleading.

What Happens if the report is poor or missing?

• Poor Report: Banks and partners lose trust; financing becomes difficult; tax audits likely.

• Unrealistic Report: Contradictory figures lead to financing refusal and possible tax authority investigation.

• No Report: Fines are imposed; repeated failure leads to deregistration; board members remain personally liable for company obligations.

Board Member’s practical checklist

1. Confirm fiscal year and reporting deadline.

2. Review outstanding invoices and cash balance.

3. Verify owner/board loans are documented and booked.

4. Reconcile bank and tax authority balances.

5. Check receivables and payables.

6. Ensure assets are capitalized and depreciated.

7. Conduct inventory count.

8. Review related-party agreements.

9. Split short- vs long-term liabilities.

10. Calculate vacation reserves.

11. Align P&L and balance sheet, monitor equity.

12. Provide clear explanatory notes.

A Quality report is an investment

The annual report is not just a legal requirement – it is a public business card that reflects financial health and governance.

A clear, accurate report makes it easier to access financing, strengthens trust with partners, and protects the board from liability.

⚠️ A poor or missing report damages reputation, blocks financing, and risks deregistration.

👉 Recommendation for boards: Don’t leave reporting to the last minute. Before the end of 2025, review your accounts carefully, address risks, and seek professional advice if needed.

A quality report is not a cost – it’s an investment in your company’s credibility and future.