The directors are required to present audited financial statements to the shareholders at least once in each calendar year; this is usually done at the annual general meeting. These statements comprise a balance sheet and profit and loss account together with a directors' report.

Group accounts must be prepared by a holding company; these usually take the form of consolidated statements.

The Companies Acts 1931-1993 include extensive provisions concerning the contents of company and group accounts.


Financial statements must give a "true and fair view" of the company's trading results and state of affairs. Accordingly, they are generally required to conform with the Financial Reporting Standards issued by the Accounting Standards Board.

Usually, the statutory accounts will form the basis for the computation of profit for tax purposes and will be part of the annual return to the tax authorities. It is neither necessary nor considered proper accounting practice for valuations adopted for tax purposes to be used in the preparation of statutory accounts.

Inflation accounting is not recognised for commercial or tax purposes. Fixed assets may be revalued, but any surplus arising as a result is neither distributable nor taxable until realised. Since the financial statements must give a true and fair view, secret reserves are not legally permissible, and undue conservatism in valuation is not regarded as good practice.


Accounting practices in the Isle of Man follow closely those of our neighbours in the United Kingdom, from whose professional accountancy bodies practising accountants on the Island are predominantly drawn. This involves compliance with UK Financial Reporting Standard and recommendations issued by the Accounting Standards Board including SORPS.

The relevant legal provisions are contained largely in the Isle of Man Companies Act 1982. These are not exhaustive; the principal elements of potential interest to an international reader are set out below.

  • Fixed assets having a market value may be shown at that value, or at their historic cost.
  • Depreciation rates are generally based on economic principles and bear little resemblance to those allowed by the Assessor of Income Tax.
  • Dividends are treated as a charge to the profit and loss account of the period and included under current liabilities in the balance sheet. Dividends are dealt with gross, and are wholly deductible from taxable profits.
  • Disclosure requirements in financial statements are generally less onerous than in the United Kingdom. The "true and fair view" imperative remains, however, constant.

Under section 33 of the Companies Act 1992 the Treasury may by order modify the accounting rules set out in the 1982 Act. This may not be done without consultation with representative accounting bodies in the Isle of Man.


Limited liability companies resident for tax purposes on the Island must appoint an auditor or firm of auditors whose duty is to report to the shareholders on the company's financial statements unless its turnover is less than the VAT registration threshold (currently £46,000 per annum) or it is a private investment holding company. Companies not resident for tax purposes in the Island, such as exempt companies may resolve providing unanimous approval of the shareholders to dispense with the audit requirement.

An auditor must be a member of a recognised professional body of accountants or, exceptionally, may be authorised by the Isle of Man Treasury. A director or employee of the company may not be appointed as its auditor. Although a shareholder is not legally barred from appointment, total independence from the company is in practice demanded of any auditor. Formal Government tax audits are not required by Isle of Man law.

A draft statement of Recommended Practice (SORP) has recently been prepared by the Isle of Man Society of Chartered Accountants. The SORP sets out what the society believes to be the basis for minimum disclosure and compliance with accounting standards in all Isle of Man companies' accounts. The SORP is based on the disclosure requirements in the Isle of Man Companies Acts together with the requirements set out in International Accounting Standard 5.

The information given is not exhaustive and is based on conditions existing at 5 May 1999. Readers are advised to consult with professionals, such as independent accountants, legal counsel, and investment bankers, before taking any formal action. Deloitte & Touche would be pleased to discuss specific problems.