The annual accounts in the CAC
The new Companies and Associations Code (CAC) and its implementation decree contain new rules on the annual accounts. Since the annual accounts are the most important instrument for third parties to value the company, the legal framework is tightened but also modernized.
Correction of the annual accounts
An important novelty concerns the possibility to correct approved annual accounts. A mere correction of material errors such as clerical errors is evident. The management of a company can make such correction itself.
But the new law also allows corrections in case the initial accounting entry results in annual accounts not giving a fair view of the company's assets, financial conditions and accounting result. E.g. when the general meeting consented with valuation rules which afterwards showed inappropriate. The management should let the general meeting, which approved the initial annual accounts, also approve such correction. Such correction cannot jeopardize bona fide third parties' rights. Question is whether the tax authorities see themselves as a bona fide third party ...
An annual report
Management should draft a report in which it accounts for the strategy.
This report contains information on important events which occurred after the end of the financial year, information on research and development activities, information on the existence of branches of the company, etc. It is important that the report should hold a fair and true view (according to the law a well-balanced and full analyses) on the development and the results of the business and the position of the company. In other words a readable summary of the annual accounts.
Content of the annual accounts
As such nothing changes on the content of the annual accounts. But the implementing decree of the CAC contains some clarifications worth mentioning.
First the new implementation decree clarifies that the accounting value of a share in case of demerger or partial demerger should be calculated pro rata the real value of the attributed assets.
Secondly: what is the value of an asset which is not acquired for cash (but e.g. is acquired in exchange for a service or another asset). The new rule is that the acquisition price then equals the market value of the compensation. New and important: you should take the value at the time of the swap into consideration and not the date of the actual handover of the good or the service.
Thirdly, a very relevant change regarding the accounting entry for unavailable reserves. You should split out this entry following the reason of the unavailability.
Finally, there is now also a scheme for companies without capital.
Correct annual accounts are the responsibility of the director. The new code concentrates more on director's liability than on criminal sanctions. This means that a director will sooner be liable for damage coming from errors. There are limits to this liability and a director can avoid this joint liability, but then he/she should act swiftly and effectively.