What should I do with events after the balance sheet date?
New information about the position at the balance sheet date can change the figures. Important events arising later may require disclosure.
Short answer
New information about the position at the balance sheet date can change the figures. Important events arising later may require disclosure.
Basis: art. 2:380a DCC
When does an event change the annual figures?
The distinction is between 'becomes apparent from' and 'arises after'. If a debtor goes bankrupt in January while the receivable was already uncollectible at the balance sheet date, you process the write-down in the figures of the past financial year.
The question is whether the new information gives evidence about a condition that already existed at the balance sheet date. A customer who was in serious financial difficulty on 31 December and goes bankrupt in January can show that the €25,000 receivable was already worth less at the end of December. Gather the circumstances around the balance sheet date, such as overdue payments and correspondence. Do not automatically book every later loss back to last year: if the problem arose entirely after the balance sheet date, it belongs in the next financial year. Also document when the board received the information.
When is disclosure without adjustment enough?
If a building that was still in order at the balance sheet date burns down in February, that is an event that arose afterwards: you do not process it in the figures, but disclose it if it is important for the view (art. 2:380a DCC).
Suppose that on 15 February a fire damages a warehouse with a book value of €200,000, while on 31 December there was no damage. The balance sheet of 31 December is therefore in principle not reduced. If the damage is important for the view, explain its nature and financial consequences in the annual accounts under art. 2:380a DCC. Also look at insurance and liquidity consequences; a large insurance payout may be uncertain. The event may still require an adjustment of the budget or financing arrangements, even if the old balance sheet amounts stay.
What if continuity comes under pressure?
If after the balance sheet date it becomes clear that sustainable continuation is no longer possible, art. 2:384(3) DCC may have consequences for valuation on a going-concern basis. Assess this on the specific facts; not every setback ends the going-concern assumption.
If it becomes clear after the balance sheet date that the company can no longer continue, an ordinary subsequent-events paragraph may not suffice. Art. 2:384(3) DCC has consequences for the going-concern assumption in valuation. Assess, for example, whether fixed assets are still used in normal operations or should be viewed at realisable value. Involve the board and the accountant in good time in such a turnaround; the decision may affect several items at once. Check events up to the relevant date of preparation and record why an event was processed, disclosed or left outside the annual accounts.
Make a decision note before preparing
For each important event, record the balance sheet date, the date on which it arose and the date on which the board heard of it. Then note the evidence for the position at the balance sheet date. For a debtor of €40,000, payment arrears in November and December can show that the problems already existed before year end; a sudden bankruptcy due to a fire in January can lead to a different conclusion. Describe why you wrote a receivable down or only added a note. That way the consideration can later be followed by shareholders or the accountant.
Look not only at individual items but also at the company as a whole. The loss of a major customer after the balance sheet date can affect the budget for the coming year. If the company can then no longer be sustainably continued, the valuation basis may have to change. That assessment requires more than noting that the result disappoints. Update the assessment up to the time the annual accounts are prepared and, where the law prescribes it, up to the deliberation before adoption. After adoption, check whether new information is so serious that a separate notice under art. 2:362(6) DCC may be needed.
Sources
Frequently asked questions
Is every bankruptcy of a debtor after the balance sheet date an adjustment?
No. Investigate whether the uncollectibility already existed at the balance sheet date or arose only later.
What if the event only becomes known after adoption?
Assess the seriousness and the rules for errors or notices after adoption separately.
Must a minor event be disclosed?
Disclosure is mainly needed when the event is relevant to the required view.
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