Coronavirus: This must now be taken into account in the 2019 annual financial statements!

The ongoing spread of the coronavirus in Germany, Europe and the world has had a significant impact on all areas of society. Last but not least, the economy has also been severely affected by the Corona pandemic. In particular, the collapse of global and national supply chains and the cessation or drastic reduction of production in a large number of sectors of the economy are increasingly leading to noticeable economic and financial burdens for companies.

The effects of the coronavirus on the annual financial statements as of 31.12.2019 are explained below.

Elimination of the premise of “going concern”

Quite a few companies are currently preparing their annual financial statements as of 31.12.2019. In accordance with Section 252 (1) No. 2 of the German Commercial Code (HGB), annual financial statements must be prepared on the assumption of agoing concern. This premise plays an essential role in the valuation of balance sheet items. Whethera continuation of the company’s activities is to be assumed is not to be assessed onthe reporting date of 31.12.2019, but at the time of the preparation of theannual financial statements. The management must therefore prepare a going concern forecast at this time. All risks and opportunities arising from the Corona pandemic must be taken into account. If the management no longer assumes that the company’s activities will continue, the annual financial statements would have to be prepared from a liquidation point of view. In its technical note of 25.03.2020, the Institute of Public Auditors (IDW) emphasised that public support measures must be taken into account when assessing the assumption of the continuation of the company’s activities , even if they have not yet become legally binding . It is sufficient that the implementation of concrete andreliable statements by the federal government or state governments can be expected. Insofar as such support measures are taken into account in the preparation of the annual financial statements, they must be listed in the notes or in the financial statements. management report.

Coronavirus: value-enhancing or value-creating event

When valuing balance sheet items – regardless of the coronavirus – the question arises as to the extent to which value-enhancing or value-creating events after the balance sheet date are to be taken into account. Value-enhancing events are tobe taken into account; value-enhancing events are not. Since the Corona pandemic originatedin 2019, it is reasonable to assume that it represents a value-enhancingevent. However, the IDW and the prevailing expert opinion assume that the pandemic is a value-creating event, so claims for damages from customers due to Corona-related supply interruptions are not to be recognised as provisions in the balance sheet as of 31.12.2019.

Deadlines for the preparation and disclosure of annual accounts

Currently, the Federal Government has not made any changes to the statutory deadlines for the preparation and disclosure of annual financial statements of corporations . Thus, it remains the case that the annual financial statements of corporations must be prepared within three or six months after the end of the financial year. If these legal deadlines cannot currently be met due to the Corona pandemic, there is no threat of sanctions (fines or administrative fines), at least under commercial law. The disclosure of annual financial statements must regularly take place within one year of the end of the financial year. The legislator provides for administrative fines in the event of late disclosure . It is conceivable here that the provision of Section 335 (5) of the German Commercial Code (HGB ) comes into effect, according to which the imposition of administrative fines is initially waived in the event of inability through no fault of one’s own.

Activation of public support measures

The federal and state governments are supporting the economy with a wide range of measures. The granting of short-time work allowance and direct grants, the granting of loans and the assumption of guarantees are intended to mitigate the economic and financial effects of the Corona pandemic. Insofar as such measures can be capitalised (e.g. subsidies), they may in principle only be capitalised if there is legal certainty about the granting of such measures by means of a decision or other administrative acts. Therefore, capitalization in the 2019 annual financial statements will not be relevant.

Statutory audit of annual financial statements for the 2019 financial year

Annual financial statements and management reports of medium-sized and large corporations are subject to auditing. Auditors will focus on the audit of the financial statements even more than in previous years on the examination of the assumption of going concern. Specialattention will also be paid to the presentation of the effects of the coronavirus pandemic on the notesand management report. General and company-related exit and access restrictions as well as the temporary unavailability of personnel at the company to be audited make audits at companies more difficult.

Recommendations

Even though the coronavirus pandemic has only had a significant impact on companies since the beginning/middle of March 2020, there are already effects on the annual financial statements and the management report for the 2019 financial year. The management must reassess and evaluate all relevant circumstances and facts that have an impact on the “going concern” assumption under the aspect of “Corona”. Since a large number of the “negative” accounting adjustments (provisions through the creation of provisions, devaluation of receivables) will not take effect until the 2020 financial year, the assessment and presentation of the positive effects of the public support measures is of particular importance.

How much does the Corona crisis have you in its grip? What challenges do you face with regard to the annual financial statements as of 31.12.2019? We look forward to your comments.

Image source: stock.adobe.com, Photographer: Stanisic Vladimir