Creating a Comprehensive Solvency Statement (UK)

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Creating a comprehensive solvency statement is critical for businesses in the UK. Accurately reflecting a company’s financial situation, solvency statements are used to measure the business’ ability to meet its financial obligations and inform potential investors and creditors of its fiscal stability. To ensure that their solvency statements are up-to-date, accurate and compliant with the law, it is essential for businesses to understand the importance of this document.

The Genie AI team understands this significance and provides support with free templates from our community library. Our template library holds millions of data points that teach our AI what a market-standard solvency statement looks like; allowing anyone to draft legal documents without paying for expensive lawyer services. Solvency statements should include all relevant information about assets, liabilities, equity and any potential risks that may affect the company’s financial position. As such, these must be reviewed regularly to ensure accuracy as they will be used in financing or investment decisions - failure to do so could lead to legal consequences.

At Genie AI we want you to have confidence when preparing your own solvency statement - so read on below for our step-by-step guidance and learn how you can access our template library today!

Definitions (feel free to skip)

Solvency Ratio- A measure of a company’s financial health calculated by dividing total assets by total liabilities.
Balance Sheet- A document that provides an overview of a company’s assets and liabilities.
Income Statement- A document that provides an overview of a company’s revenue and expenses.
Cash Flow Statement- A document that provides an overview of a company’s cash inflows and outflows.
Notes to the Financial Statements- Documents that provide additional information about a company’s financial statements.

Contents

• Overview of a Solvency Statement
• The UK Solvency Statement Requirements
• Gathering the Necessary Documents
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
• Calculating the Solvency Ratio
• Calculating Total Assets
• Calculating Total Liabilities
• Calculating the Solvency Ratio
• Analyzing the Financial Statements
• Review the Balance Sheet
• Review the Income Statement
• Review the Cash Flow Statement
• Review the Notes to the Financial Statements
• Preparing the Solvency Statement
• Formatting the Statement
• Compiling the Data
• Calculating the Solvency Ratio
• Filing the Solvency Statement
• Collecting the Necessary Documents
• Submitting the Documents to the Regulatory Body
• Tips for Submitting the Solvency Statement
• Ensure all Documents are Accurate
• Check for Compliance with Regulatory Requirements
• Double-Check all Calculations
• Maintaining the Solvency Statement
• Ensure all Financial Records are Up-to-Date
• Determine any Changes in the Solvency Ratio
• Conclusion

Get started

Overview of a Solvency Statement

• Understand the purpose of a Solvency Statement
• Learn about the different types of Solvency Statements
• Understand the role of a Solvency Statement in UK business and financial reporting
• Recognize the importance of financial solvency

Once you have a basic understanding of the purpose of a Solvency Statement and the different types of statements, you can check this step off your list and move on to the next step.

The UK Solvency Statement Requirements

• Identify the company’s assets and liabilities, including any off-balance sheet items
• Acquire the necessary financial statements and other supporting documents to complete the solvency statement
• Calculate the solvency ratio and assess the results
• Analyze the risk of the company and adjust the solvency statement where necessary
• Prepare the solvency statement and provide a summary of the results

You will know you can check off this step when you have collected the necessary documents and prepared the solvency statement.

Gathering the Necessary Documents

• Collect all financial documents that are related to your company’s solvency such as balance sheets, cash flow statements, income statements, and other accounting records
• Make sure all documents are up-to-date, accurate, and verifiable
• Review the documents to ensure they are complete and accurate
• Once you have gathered all the necessary documents, you can check off this step and move on to the next step of creating the balance sheet.

Balance Sheet

• Gather all the company’s financial documents and information, including bank statements, loan documents, investment records, and other financial documents
• Enter all the assets and liabilities on the balance sheet. Ensure all liabilities are labelled correctly, and that you have included all payments due to be made
• Determine the total assets and liabilities of the company and calculate the net worth
• Compare the balance sheet to the solvency statement from the previous year, to identify any changes
• When you have completed the balance sheet, you will have a good estimation of the company’s financial position and can move on to the next step.

Income Statement

• Gather all your financial records from the past three years, including sales, expenses, and other income
• Calculate your total income for the financial year in question by taking the net income from the income statement
• Calculate the total costs for the financial year by adding together the cost of sales and operating expenses
• Calculate your net profit for the financial year by subtracting total costs from total income
• Once you have your net profit for the financial year, check it off your list and move on to the next step in creating a comprehensive solvency statement (UK): creating a cash flow statement.

Cash Flow Statement

• Create a statement of cash flows using the indirect method, which includes cash flows from operating activities, investing activities, and financing activities
• Operating activities should include cash receipts from customers, cash payments to suppliers, and operating costs
• Investing activities should include cash payments for acquisition and disposal of assets, as well as payment of dividends
• Financing activities should include cash receipts from long-term loans, cash payments of long-term loans, cash receipts from shares, and cash payments of dividends
• When you have completed the cash flow statement, you can move on to the next step of creating the notes to the financial statements.

Notes to the Financial Statements

• Read the company’s notes to the financial statements.
• Note any additional items that may be included in the calculation of the Solvency Ratio such as fixed assets, pensions liabilities, and deferred tax liabilities.
• Make sure that all relevant items are included in the calculation of the Solvency Ratio.
• Make sure to include any additional items identified in the notes to the financial statements.
• When you are finished, you will have a comprehensive calculation of the Solvency Ratio which includes all relevant items noted in the notes to the financial statements.

Calculating the Solvency Ratio

• Calculate the solvency ratio by dividing total liabilities by total assets.
• Use the most recent financial statements to calculate the ratio.
• Make sure you include all liabilities and assets in the calculation.
• When you have the ratio, you can check it off your list and move on to the next step: Calculating Total Assets.

Calculating Total Assets

• Add up the value of all current assets, such as cash, investments, accounts receivable, inventory, and prepaid expenses
• Calculate the sum of all non-current assets, such as property, plant, and equipment, goodwill, intangibles, and other long-term assets
• Add up the current and non-current assets to get the total assets
• Check your calculations to make sure you have the correct total
• Once you have the total assets, you can move on to the next step of calculating total liabilities.

Calculating Total Liabilities

• Gather all relevant documents and records including balance sheets, loan agreements, credit agreements, and any other documents related to liabilities
• Review the balance sheets and loan/credit agreements to identify all liabilities including current and long-term debt, lease obligations, and other contractual liabilities
• Record all liabilities in a spreadsheet, ensuring that each liability is accurately reflected
• Calculate the total liabilities by totaling up all the liabilities recorded in the spreadsheet
• Once the total liabilities have been calculated, you can check this off your list and move on to the next step of calculating the solvency ratio.

Calculating the Solvency Ratio

• Divide total liabilities by total assets to calculate the solvency ratio
• Make sure the solvency ratio is within the recommended range of 0.8 - 1.2
• When the solvency ratio is within the recommended range, you can move on to the next step - Analyzing the Financial Statements.

Analyzing the Financial Statements

• Read and analyze the financial statements to understand the company’s financial position
• Carefully review the income statement, balance sheet, and cash flow statement
• Compare the current year financials to the previous year’s to identify any changes and trends
• Identify any risks or potential issues with the company’s financial position
• Note any discrepancies or anomalies in the financial statements

You can check this off your list once you have a thorough understanding of the company’s financial position and have identified any potential issues.

Review the Balance Sheet

• Examine the assets section of the balance sheet and compare it to the liabilities section to ensure that all assets are adequately covered
• Check the balance sheet for any discrepancies between the values of assets and liabilities
• Analyze the total equity of the company to ensure that the company is solvent
• Once you have verified that all liabilities are covered by assets and equity is positive, you can move on to the next step.

Review the Income Statement

• Carefully review the income statement to identify all sources of revenue
• Look for any discrepancies between the income statement and the other financial statements
• Make sure all income is accurately recorded and accounted for in the solvency statement
• Note any expenses that may not be included in the solvency statement
• Compare the income statement to the previous year’s income statement to identify any changes or trends
• Once you have completed your review, you can check this off your list and move on to the next step.

Review the Cash Flow Statement

• Examine the Cash Flow Statement to identify the sources and uses of cash
• Analyze the cash flows from operating activities, investing activities, and financing activities to determine the net cash flow
• Determine if cash flow is sufficient to cover the firm’s short-term and long-term obligations
• Check if cash and cash equivalents increased or decreased during the period
• Compare the cash flow statement with the other financial statements to ensure accuracy
• When complete, check off this step and move on to the next step of reviewing the Notes to the Financial Statements.

Review the Notes to the Financial Statements

• Examine all the notes included in the financial statements to understand the impacts of accounting policies and any other relevant information
• Ensure that any accounting policies used are in accordance with applicable accounting standards
• Make sure that all pertinent disclosures are included in the notes
• Look for any related party transactions to ensure that they are appropriately disclosed
• Make sure that any uncertainties of going concern are noted
• Review any off-balance sheet arrangements
• Check for any contingent liabilities or commitments
• Verify that any significant estimates used in the financial statements are disclosed in the notes
• Once you have reviewed the notes to the financial statements and ensure that all relevant information is disclosed, you can check off this step and move on to the next step.

Preparing the Solvency Statement

• Gather all relevant financial information including balance sheets, income statements, cash flow statements and other documents for the period of the Solvency statement
• Reconcile the balance sheets and income statements to ensure accuracy
• Calculate the solvency ratio by dividing the total equity by total assets
• Calculate the current ratio by dividing the current assets by the current liabilities
• Calculate the cash flow ratio by dividing the net cash flow from operations by the total liabilities
• Calculate the debt-to-equity ratio by dividing the total liabilities by total equity
• Calculate the return on equity by dividing net income by the total equity
• Calculate the weighted average cost of capital (WACC)
• Once all the ratios have been calculated, compare them to industry standards and analyze the results

You’ll know you can check this off your list and move on to the next step when you have calculated all the ratios, compared them to industry standards, and analyzed the results.

Formatting the Statement

• Design the statement in accordance with Companies House regulations
• Enter the name and company number at the top
• Include a heading for each section
• Number each section for reference and clarity
• Write in clear, concise language
• Make explicit use of subheadings, if needed
• When formatting is complete, check to make sure all information is accurate and up-to-date

You can check this off your list when the formatting is complete and all information is accurate and up-to-date.

Compiling the Data

• Gather all financial documents related to the solvency statement, including balance sheets, income statements, cash flow statements, and notes to the financial statements
• Extract relevant data from the statements and organize it into the appropriate categories
• Double check to make sure that all the figures are accurate and complete
• When all the data is collected and organized, you can move on to the next step of calculating the solvency ratio.

Calculating the Solvency Ratio

• Calculate the solvency ratio by dividing the company’s total assets by its total liabilities.
• Compare the solvency ratio to the company’s target ratio.
• Make any necessary adjustments to the solvency statement.
• Once the calculation is complete and the statement has been appropriately adjusted, you can move on to filing the solvency statement with the applicable government agency.

Filing the Solvency Statement

• Gather all the documents and information needed to complete the Solvency Statement
• Submit the Solvency Statement to the relevant governing body
• Ensure that the Solvency Statement was accepted and filed correctly
• Once you receive confirmation that the Solvency Statement was accepted, check off this step and move on to the next step.

Collecting the Necessary Documents

• Gather the organization’s financial documents, including balance sheets, income statements, and cash flow statements
• Obtain signed statements from the directors confirming that the company is solvent
• Get current valuations of any assets owned by the company
• Determine the fair value of any liabilities held by the company
• Once all documents and required information is gathered, you’re ready to move on to submitting the documents to the regulatory body.

Submitting the Documents to the Regulatory Body

• Gather the necessary documents in a single file and submit it to the regulatory body.
• Ensure all the documents are complete and accurate to avoid any delays in processing.
• Once you have submitted the documents, you will receive a confirmation email or letter from the regulatory body.
• You will know this step is complete when you have received the confirmation email or letter from the regulatory body.

Tips for Submitting the Solvency Statement

• Check that you have all the required documents before submitting the solvency statement.
• Make sure to submit the solvency statement to the correct regulatory body.
• Ensure that all the information provided is accurate and up-to-date.
• Keep a copy of the submitted documents for record-keeping purposes.
• Once you have submitted the solvency statement and received confirmation of receipt, you can move on to the next step.

Ensure all Documents are Accurate

• Gather all the documents related to the solvency statement
• Cross-check the accuracy of documents and the financial statements
• Ensure that all the documents are up to date and accurate
• Ensure that all the information provided is valid and complete
• Check that all the data is consistent across documents
• Once all the documents have been checked and verified, you can move on to checking for compliance with regulatory requirements.

Check for Compliance with Regulatory Requirements

• Ensure the solvency statement is compliant with the latest regulatory requirements in the UK
• Review the document and compare it to the applicable regulations to check for compliance
• Seek advice from a financial expert if necessary to ensure all parts of the solvency statement are compliant
• Once you are confident that the solvency statement is compliant with regulations, you can move on to the next step.

Double-Check all Calculations

• Review each calculation in the solvency statement to ensure that it is accurate.
• Refer to the original source documents to check accuracy.
• Confirm that all calculations have been made in accordance with accounting standards and regulatory requirements.
• Verify the accuracy of the solvency statement by running a double-entry check.
• Once you are sure that all calculations are correct, you can move on to the next step.

Maintaining the Solvency Statement

• Ensure all information is up-to-date and correct in the Solvency Statement
• Review the Statement of Financial Position, Statement of Cash Flows, and Statement of Comprehensive Income
• Reconcile the Solvency Statement with the figures from the financial statements
• Make any necessary adjustments to the Solvency Statement
• Check the Solvency Statement for any errors or mistakes
• Record any changes or modifications to the Solvency Statement

When you have completed the steps above, you will have maintained the Solvency Statement. You can then move on to the next step in the guide.

Ensure all Financial Records are Up-to-Date

• Review the financial records of the company to ensure that all data is up-to-date and accurate
• This includes examining any current and past assets, liabilities, income, expenses and other financial details
• Ensure all the data is up-to-date and accurately recorded and that all relevant information has been included
• Check if any changes have been made to the existing data and update this accordingly
• Once all records have been updated and all relevant information is included, you can check this off your list and move on to the next step.

Determine any Changes in the Solvency Ratio

• Calculate the solvency ratio by dividing total liabilities with total equity
• Compare the calculated solvency ratio with the ratio from the previous period to determine any changes
• Analyse any changes in the ratio to identify potential risks and take appropriate action
• When all the calculations are done and the analysis is complete, you can check this off your list and move on to the conclusion.

Conclusion

• Review the overall solvency ratio, and determine whether it meets the requirements of the company.
• Compare the solvency ratio to the previous period, and identify any changes.
• Make sure the changes are consistent with the company’s goals and strategies.
• Finalize the solvency statement, and ensure that all information is accurate and complete.
• Review the solvency statement and ensure that it meets all regulatory requirements.
• Once you have completed the solvency statement, you can check it off your list and move on to the next step.

FAQ:

Q: Does a comprehensive solvency statement provide enough information to satisfy UK auditors?

Asked by Julian on June 9th 2022.
A: Yes, if your comprehensive solvency statement is structured according to the guidelines set out by the Financial Reporting Council (FRC), it should provide enough information to satisfy UK auditors. The FRC’s guidance focuses on providing a clear overview of the company’s financial position, including the company’s assets, liabilities and equity. This report should also include a detailed breakdown of any liabilities, such as those arising from debt, leases and other contractual obligations. Additionally, the statement should highlight any contingent liabilities that may arise in the future.

Q: Is a comprehensive solvency statement legally required for UK businesses?

Asked by Nathan on May 14th 2022.
A: No, it is not legally required for UK businesses to produce a comprehensive solvency statement. However, it is often seen as a best practice for businesses to produce one in order to provide transparency in regards to their financial position and help reduce potential risks or liabilities that may arise in the future. Furthermore, some lenders or financial institutions may request a comprehensive solvency statement as part of the loan application process, so it is often beneficial for businesses to have one prepared and ready in case they need it.

Q: What is the difference between a solvency statement and a business plan?

Asked by Rachel on June 6th 2022.
A: A solvency statement is typically produced annually and provides an in-depth overview of the company’s financial position, including assets, liabilities and equity. On the other hand, a business plan is typically used to set out an organisation’s strategy for achieving its goals over a certain period of time. A business plan usually outlines objectives and goals, market research, competitive analysis, and financial projections. A comprehensive solvency statement can be included in a business plan as an appendix or supplementary document to provide more information about the company’s financial position.

Q: What kind of information does my comprehensive solvency statement need to include?

Asked by Emma on April 24th 2022.
A: Your comprehensive solvency statement should clearly outline the company’s assets, liabilities and equity, as well as any contingent liabilities that may arise in the future. The report should include detailed information on all assets owned by the company such as property, investments and cash holdings; all liabilities such as debt, leases and other contractual obligations; and all equity such as shareholder funds and retained earnings. Additionally, you should include any other relevant information such as details of any loans taken out or any recent changes made to the structure of your organisation that may affect its financial position.

Q: How often should I produce a comprehensive solvency statement?

Asked by Noah on December 8th 2022.
A: Generally speaking it is recommended that you produce a comprehensive solvency statement at least once per year in order to ensure that your company’s financial position remains up-to-date. However, if your organisation has undergone significant changes over the past year or has taken on a large amount of debt then you may wish to produce an updated statement more frequently in order to provide an accurate representation of your current financial position.

Q: How do I ensure my comprehensive solvency statement meets UK regulations?

Asked by Abigail on November 3rd 2022.
A: In order to ensure that your comprehensive solvency statement meets UK regulations you should adhere closely to the guidance provided by the Financial Reporting Council (FRC). The FRC’s guidance outlines what should be included within your report and how this information should be presented; this includes providing detailed breakdowns of all assets owned by the company (e.g., property), all liabilities (e.g., debt) and all equity (e.g., shareholder funds). Additionally, you should ensure that all information contained within your report is accurate and up-to-date; this includes any changes made to the structure of your organisation or any new loans taken out since your last statement was produced.

Q: What happens if my comprehensive solvency statement does not meet UK regulations?

Asked by Elijah on October 9th 2022.
A: If your comprehensive solvency statement does not meet UK regulations then you may be subject to sanctions or penalties imposed by regulators or lenders who have requested the report. This could include fines or even disqualification from certain types of loan applications if you are found to have provided inaccurate or misleading information within your report. Therefore it is important that you adhere closely to FRC guidelines when producing your comprehensive solvency statement in order to ensure compliance with UK regulations.

Q: What are some common mistakes made when creating a comprehensive solvency statements?

Asked by Olivia on July 15th 2022.
A: Some common mistakes made when creating a comprehensive solvency statements include not providing detailed breakdowns of all assets owned by the company (e.g., property), all liabilities (e.g., debt) and all equity (e.g., shareholder funds); not including any changes made to the structure of your organisation or any new loans taken out since your last statement was produced; or failing to provide accurate and up-to-date information within your report which could lead to inaccurate representation of your company’s current financial position. It is therefore important that you take care when preparing your report in order to ensure compliance with UK regulations while also providing an accurate overview of your company’s financial position at any given time.

Q: How can I use my comprehensive solvency statements for planning purposes?

Asked by Mason on August 4th 2022.
A: Your comprehensive solvency statements can be used for planning purposes as they provide an accurate snapshot of your company’s financial position at any given time which can then be used for future planning purposes such as forecasting profits or losses over a certain period of time or assessing potential risks associated with taking on new investments or loans etcetera. Additionally, having an up-to-date record of your company’s financial position can also help inform decisions about how best to allocate resources within the organisation in order to achieve maximum efficiency in terms of cost savings etcetera .

Q: Are there any legal implications associated with producing a comprehensive solvency statement?

Asked by Michael on September 7th 2022.
A: Generally speaking there are no legal implications associated with producing a comprehensive solvency statement; however it is important that you adhere closely to FRC guidelines when producing this report in order to ensure compliance with UK regulations which could have legal implications if not adhered to correctly e.g., if you are found guilty of providing inaccurate or misleading information within your report then you could face sanctions or penalties imposed by regulators or lenders who have requested it etcetera . Additionally, having an up-to-date record of your company’s financial position can also help inform decisions about how best to allocate resources within the organisation in order to achieve maximum efficiency in terms of cost savings etcetera .

Example dispute

Suing a Company for Breach of Solvency Statement

• A plaintiff may raise a lawsuit against a company for breaching their solvency statement.
• This lawsuit may be raised when the company has made a false or misleading statement about their financial condition in the solvency statement.
• The plaintiff must prove that the statement was false or misleading and that the plaintiff suffered financial losses as a result.
• The court will then consider the evidence and determine the damages, if any, that should be awarded.
• The damages may include compensation for financial losses, as well as punitive damages if the court believes the company acted maliciously or with gross negligence.
• Settlements may also be reached between the plaintiff and the company without the need for a court hearing.

Templates available (free to use)

Board Meeting Minutes Section 641 Procedure To Reduce Capital Solvency Statement
Foreign National Financial Solvency Questionnaire Document Checklist Immigration
Section 643 Standard Statement Of Solvency Reducing Capital
Solvency Certificate Borrower To Lender
Solvency Certificate Lending
Solvency Declaration By Individual
Standard Declaration Of Solvency Members Voluntary Liquidation

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