25 Mar Consequences of the coronavirus outbreak for the 2019 financial statements
Consequences of the coronavirus outbreak for the 2019 financial statements
25 March, 2020
Government measures to curb the spread of the coronavirus may also have consequences for the 2019 financial statements. Although much is still unclear and measures are still being adapted and supplemented on a daily basis, certain principles are clear. We will explain this to you in this blog.
Responsibility of the board of directors
The management of a company is responsible for the preparation of the financial statements in accordance with Book 2, Title 9 of the Dutch Civil Code. These annual accounts must provide such an insight that users can form a reasonable judgement regarding the financial position and financial performance of the company. If the board does not (sufficiently) provide this insight, this is a violation of the law. The board therefore has a great interest in ensuring that the information provided in the financial statements is adequate, especially in times when much is uncertain. In this situation, this is especially important for information about the going concern assumption (see below).
Management report for medium sized and large companies*
Large and medium-sized companies must also include a management report in their financial statements. It is obvious that the management will pay attention to the consequences of the virus and government measures for the company. The management report will mainly highlight this information in the paragraph including expectations about the future and the risk paragraph.
Going concern assumption
Pursuant to the law, the financial statements are prepared based on the assumption of going concern. Due to the exceptional situation we are currently in, many entrepreneurs and their companies may find themselves in circumstances where continuity is seriously threatened or where there is great uncertainty regarding continuity.
The coronavirus outbreak itself and the subsequent government measures are events that occurred after the balance sheet date (as of 31 December 2019). In addition, these events do not provide information about the actual situation as at the balance sheet date. Therefore, there is in principle no reason to adjust the financial statements. However, an acute threat to going concern cannot go unmentioned in the annual accounts, even if it arose after the balance sheet date. For this reason, it is obvious that financial statements that have to be published in the coming weeks and months, will contain a disclosure note with regard to the going concern assumptions. Most probably, the auditor will refer to this disclosure note in his report (whether it is a compilation, review or auditors report).
This disclosure must at least indicate the consequences that the company is already experiencing and expects to experience, what measures the management has already taken and expects to take and which government measures the management expects to invoke. It should be clear from the disclosure note how great the degree of uncertainty is and how management believes the company can survive this crisis.
We can of course assist you in drawing up the disclosure notes; we have sample texts available.
Postponement of the annual accounts
By law, the financial statements must be prepared within five months after the end of the financial year (the 2019 financial statements must therefore be ready by the end of May 2020). In some cases, the uncertainty can be so great that it is wise to postpone the financial statements. To this end, the general meeting of shareholders must take a formal decision. The general meeting can grant a maximum extension of five months; this means that the 2019 annual accounts then must be ready by the end of October 2020.
If you are considering this, it is important to discuss this with your main stakeholders, such as the bank or other external financing companies; postponing the annual accounts can also be seen as a negative signal by such stakeholders.
Do you have questions about the consequences of the corona outbreak for your company in general or specifically for your financial statements? Please do not hesitate to contact your regular contact person at Joanknecht or one of our specialists .
* A legal entity is classified in one of the following categories if at least two of the three criteria of that category are met in two consecutive financial years:
|Micro legal entity||Small legal entity (if not micro)||Medium sized legal entity
(if not micro or small)
|Large legal entity|
|Total assets||≤ € 350.000||≤ € 6 miljoen||≤ € 20 miljoen||> € 20 miljoen|
|Net turnover||≤ € 700.000||≤ € 12 miljoen||≤ € 40 miljoen||> € 40 miljoen|
|Employees||< 10 FTE||< 50 FTE||< 250 FTE||≥ 250 FTE|