Annual report

The annual report is obligatory for all undertakings operating in Estonia and it must conform to the form established in legislation. The annual report consists of the annual accounts and the management report.

Financial year

A company’s financial year is 12 months long. A financial year generally coincides with the calendar year (1 January-31 December), but a company’s articles of association may specify a different financial year. In the selection of the most suitable financial year, it should be considered that the selected 12 consecutive months are chosen so that the period would be in keeping with the operating cycle of the accounting entity. One should not also forget that a financial year must always start on the first date of a month and end on the last date of a month (e.g. start on January 1 and end on December 31).

When a company is established, dissolved, or the beginning date of the financial year changed, the financial year may in these exceptional cases be shorter or longer than 12 months, but not longer than 18 months.

When submitting a report, it is essential to adhere to the correct financial year reporting period, which can also be determined with the help of the e-Business Register when the reporting obligation arises (on the day following the balance sheet date). Information regarding the obligations and reporting period of a specific financial year can be accessed on the e-Business Register website by reviewing the registration card details of the respective entity.

Stages of preparing an annual report:

1. Preparing the annual accounts
2. Preparing the management report
3. Approval of the annual financial report

The submission of an annual report entails the following steps:

1. Auditing
2. In the case of a company, preparation of the profit distribution proposal or proposal on covering of loss for the financial year
3. Submission of the annual report for approval

Annual accounts

Basic principles of preparing the annual report

• The company keeps separate accounts of its assets, liabilities, and business transactions and the assets, liabilities, and business transactions of its owners, creditors, employees, and customers;
• in preparing the report, the company is presumed to be carrying on its activities as a going concern and not to have the intention of terminating its activities.
• the information to be disclosed in the report must be concise and unambiguous;
• the report includes all significant information affecting the financial situation, financial performance, and cash flows of the company. Important information is deemed to be information the non-disclosure of which may affect the economic decisions made by the reader of the report;
• the same accounting policies and presentation formats are used on an on-going basis in preparation of the report;
• expenses relating to the revenue earned during a given accounting period are deducted from such revenue;
• the information provided in the report must be objective and reliable;
• the report must be drawn up prudently to avoid an overestimation of assets or revenue or an underestimation of liabilities or expenses;
• the report provides all information that will enable the reader of the report to obtain relevant and truthful information about the company;
• business transactions are recorded based on their substance even if this does not correspond to their legal form.
• Micro-enterprise – an accounting entity whose two indicators from the reporting date do not exceed the following thresholds: total assets of €450,000, annual revenue of €900,000, and an average number of employees during the reporting year of 10 people;
• Small-scale enterprise – an accounting entity who is not a micro-enterprise and whose two indicators from the reporting date do not exceed the following thresholds: total assets of €7,500,000, annual revenue of €15,000,000, and an average number of employees during the reporting year of 50 people;
• Medium-sized undertaking – an accounting entity who is neither a micro-enterprise nor a small-sized enterprise and whose two indicators from the reporting date do not exceed the following thresholds: total assets of €25,000,000, revenue of €50,000,000, and an average number of employees during the reporting year of 250 people;
• Large undertaking – an accounting entity who is neither a micro-enterprise, a small-scaled enterprise, nor a medium-sized undertaking.

According to the Accounting Act, companies are divided into different categories based on the figures of the balance-sheet date of the accounts and the level of public interest. Pursuant to these categories, different requirements for annual reports have been established on the basis of the Estonian financial reporting standards.

Categories of Entities 

The categories of entities are extended to all accounting entities. Accounting entities are The Republic of Estonia as a legal person in public law (hereinafter the state), local authorities, all legal persons in private or public law registered in Estonia, sole proprietors, and branches of foreign companies registered in Estonia (hereinafter branches).

• Micro-enterprise – an accounting entity whose two indicators from the reporting date do not exceed the following thresholds: total assets of €450,000, annual revenue of €900,000, and an average number of employees during the reporting year of 10 people;
• Small-scale enterprise – an accounting entity who is not a micro-enterprise and whose two indicators from the reporting date do not exceed the following thresholds: total assets of €7,500,000, annual revenue of €15,000,000, and an average number of employees during the reporting year of 50 people;
• Medium-sized undertaking – an accounting entity who is neither a micro-enterprise nor a small-sized enterprise and whose two indicators from the reporting date do not exceed the following thresholds: total assets of €25,000,000, revenue of €50,000,000, and an average number of employees during the reporting year of 250 people;
• Large undertaking – an accounting entity who is neither a micro-enterprise, a small-scaled enterprise, nor a medium-sized undertaking.

In the case that a company fails to meet the criteria established for its category in two consecutive financial years, the specific provisions of the category to which it now belongs are applied to the company starting from the third year (the year that follows the two consecutive financial years).

Annual accounts must give a true and fair view of the accounting entity’s financial position, results of its operations, and cash flows to the user of these accounts, which the user of the accounts could use when adopting business decisions. Annual accounts consist of basic reports (balance sheet, income statement, cash flow report and statement of changes in equity) and notes.

According to the Accounting Act, micro-enterprises and small-scale enterprises may, based on the Estonian financial reporting standard, prepare an abridged annual accounts instead of full annual accounts including at least two basic reports (balance sheet, income statement) and annexes. A micro-enterprise may also prepare an abridged or full annual report of a small-scale enterprise if it so wishes.

The Micro-enterprise's Simplified Annual Report

The simplified annual report of a micro-enterprise consists of two main reports: a detailed balance sheet and an income statement, along with individual notes. The number of notes for a micro-enterprise is significantly limited, and the following must be disclosed:

• The total amount of off-balance-sheet contingent and binding obligations;
• Obligations for which the entity has provided guarantees, along with a description of those guarantees;
• Advance payments and loans paid to members of the management and the higher governing body, including the amounts of loan repayments, write-offs, or waivers, as well as payment terms, interest rates, and other significant conditions;
• The average number of employees.

If the accounting entity has acquired or taken its shares as collateral during the financial year, the following information regarding the acquired or pledged disposed and undispensed shares shall be included in the notes:

• The number of shares and their nominal value; if there is no nominal value, the estimated nominal value and proportion of share capital;
• The amount paid for the shares and the reason for their acquisition or taking as collateral.

A micro-enterprise who opts to prepare the simplified annual report provided for them is not required to prepare a management report, unless the equity of the accounting enityt as of the reporting date does not meet the requirements set forth in the Commercial Code.

If the accounting entity has acquired or taken its shares as collateral during the financial year, the management report shall include information regarding the acquired or pledged disposed and undispensed shares:

• The number of shares and their nominal value; if there is no nominal value, the estimated nominal value and proportion of share capital;
• The amount paid for the shares and the reason for their acquisition or taking as collateral.

The Small Enterprise's Simplified Annual Report

The simplified annual report of a small enterprise is prepared in accordance with the Estonian Financial Reporting Standard and consists of two main reports: the balance sheet and the income statement, along with the notes. A small enterprise is also required to prepare a management report.

Medium-sized undertakings and large undertakings must prepare their annual report in full, i.e. it consists of a management report, four main statements – balance sheet, income statement, cash flow statement, and the statement of changes in owners’ equity – and notes. 

A micro-enterprise may, if it so wishes, prepare an abridged annual account of a small undertaking, and micro and small enterprises may, if necessary, prepare a full annual report.

Annual accounts shall be prepared in Estonian and in the currency officially applicable in Estonia, and the degree of precision used for the figures shall be indicated (for example, in euros, thousands of euros).

1. Balance sheet and income statement

The balance sheet is a view of the company’s financial situation (assets, liabilities and equity as of the end of the financial year). The income statement lists the income and expenses and is a view of the company’s operating results during the reporting period (income, expenses and profit or loss).

2. Cash flow statement

The cash flow statement is a view of the company’s cash flows during the reporting period (receipts of cash and cash equivalents and disbursements). In this statement, you indicate the receipts and expenditures during the reporting period, grouped according to their purpose as cash flow from operating activities, investing activities and financing activities.

3. Statement of changes in equity

The Statement of changes in equity is used to recognize changes in the company’s equity during the reporting period. You are required to record separately any contributions of capital made by the owners and disbursements made to owners, profit or loss for the reporting period, impact of changes in accounting policies, increase and decrease of reserves and other economic transactions that impacted equity entries.

4. Notes to the annual accounts

The number of notes in the annual report depends on the particular entity, but the following must certainly be added to the report:

• explanation as to the financial reporting standard used for preparing the annual report;
• the accounting polices used for preparing the annual report;
• explanations regarding to key entries and changes in them during the reporting period.

Management report

Management reports provide an overview of a company’s activity and circumstances that are of material importance to evaluating the company’s financial condition and economic activity, key events in the financial year, and forecast development trends in the next financial year. One should certainly not forget to put down the main activity and ancillary activities of the accounting entity.

In the case that the owners’ equity is not in accordance with the requirements of the Commercial Code (meaning that it is negative) as at the end of a financial year, the management report must include a description of activities that have been performed or will be performed to be sustainable in the future or state if a different decision has been adopted.

Accounting entities that are subject to an audit obligation must include the main financial ratios concerning the financial year and the preceding financial year, and the methods for calculating the ratios (equations) in their management report.

Review of annual report by auditors

A sworn auditor’s report must be appended to the annual report if a company is required to undergo an audit pursuant to the Auditors Activities Act. An audit or review of the annual report is mandatory for accounting entities that have at least two figures in their annual report exceeding the following conditions (audit and review rates apply retroactively to reporting periods beginning on January 1, 2024, and to the reports prepared on them):

The audit/review is also mandatory for an accounting entity if at least one of the indicators reported in its annual financial statements exceeds the following conditions:

The auditor review is also obligatory for all public limited companies, organisations subject to state accounting requirements, local municipalities, public organisations, foundations and political parties funded from the state budget.

Filing the annual report

You are required to file the annual report with the Commercial Register within six months of the end of the financial year. The report can be filed electronically via the e-Commercial Register Company Registration Portal.

When filing your annual report, all of your permissions and notices that have been entered in registries are displayed, and you must confirm that you have met the notification obligations established in law or that the aforementioned notification obligations do not exist. Before you confirm your data, check your data in the Register of Economic Activities and make sure the data is correct. If there are inaccuracies in the registry data, submit a notice to have the data amended.

Guidelines for filing the annual report electronically

Related articles

• Auditing a company
• Corporate accounting
• Reporting for companies

References

• The Estonian Board of Auditors
• Annual report guidelines of the Center of Registers and Information Systems

Services

• E-Business Register

Laws

• Commercial Code
• Accounting Act

Related institutions

• Centre of Registers and Information Systems