Notes to financial statements – events after the balance sheet date

20. 6. 2016

Most companies are now working on the financial statements for the accounting period of the calendar year 2015, so they don’t have to deal with the changes in Act No. 563/1991 Col., on accounting, as amended, introduced with effect from 1 January 2016 by an amendment in the form of Act No. 221/2015 Coll.

As we all know, financial statements are an integral whole, consisting of a balance sheet, a profit and loss statement and notes that explain and add numeric information in the balance sheet and profit and loss statement.

In their financial statements, accounting entities are also obliged to provide information (Section 19 [5]) on the facts which, as uncertain conditions or situations, existed at the end of the balance sheet date and whose consequences significantly change the view of the financial situation of the accounting entity. What is significant information? The Accounting Act provides a very broad answer, namely information is considered significant if its omission or misstatement could influence the judgment or decision-making of the person who uses this information.

Based on the above, a company’s accountant understands that the notes to the financial statements should also mention any significant events that occurred in the company in the period between the end of the accounting period being closed (i.e. after 31 December 2015 for the financial statements for 2015) and the date of preparation of the financial statements; in accordance with Section 18 (2) of the Accounting Act, the date of preparation of financial statements means the day of affixing the signature record of the statutory body. In the practice of companies that are not subject to statutory audit, it is usually a March date; for those subject to statutory audit, it is a June day.

What exactly should this post-financial-statement information be about? This detail has not been dealt with by our accounting regulations specifically yet.

Generally, they only mention that it is necessary to deal with all the information known to the entity until the moment of preparation of the financial statements. And it does not matter at all whether it is positive or negative for the company.

An example might be a warehouse fire after the balance sheet date, which certainly does not say anything about the status and value of stock at the balance sheet date; on the other hand, it is clear that the destruction of stock – regardless of the fact that this event occurred after the balance sheet date – can no longer bring the company the expected revenue, and that should be communicated to the users of the financial statements in the notes.

Another example is information on a merger that the accounting entity participated in after the balance sheet date, because it casts a much different light on any standard conclusions drawn from its balance sheet and profit and loss statement.

The new wording of Section 19 (5), (6) and (7) of the Accounting Act provides more detailed specification with regard to the fact that, at the balance sheet date, current period bookkeeping must take into account the impact of events that occurred before the end of the balance sheet date, even though the information about these events did not become known to the accounting entity until the period between the balance sheet date and the date of preparation of the financial statements.

The consequences of these events must be described and their economic impacts must be quantified in the notes to the financial statements. We will have to focus more on this fact. This applies to the next financial statements, from 2016.

Ing. Michaela Dvořáková

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