GOING CONCERN IN THE 2023 FINANCIAL STATEMENTS

Fundamental to the preparation of the financial statements for the year 2023 are the considerations on the prospect of going concern: despite the period of crisis involving the global economy, there are no exceptions regarding the adoption of the principle of going concern, as specified in Article 2423-bis, number 1) of the Civil Code. 

Therefore, before examining any item in the financial statements, it is necessary to take into consideration the provisions of the OIC 11 document; this is because the valuation of items in the financial statements must be carried out considering the continuity of business activity, which is aimed at generating income.

OIC 11 AND APPROPRIATE ARRANGEMENTS

The framework outlined in OIC 11 recognizes that business continuity is essential to the company's operation; therefore, when preparing financial statements, management must prospectively assess the company's ability to continue as a functioning economic entity intended to generate income for a "foreseeable" future period, i.e., of at least 12 months from the balance sheet date. 

It is no longer possible to mention uncertainty related to the operating business, since the "adequate arrangements" required by Article 2086 of the Civil Code require the ability to make forecasts for the future, which therefore can no longer be omitted and must be qualitatively and quantitatively argued.

As a reminder, these regulations assume the existence of a financial imbalance upon the occurrence of the following conditions:

• existence of payroll debts owed to employees that are at least 30 days past due, in an amount equal to more than half of the total monthly payroll amount,
• existence of payables to suppliers overdue for at least 90 days, in an amount exceeding the amount of payables that are not overdue,
• existence of debts owed to banks and other financial intermediaries that have been past due for more than 60 days or that have exceeded the limit of credit facilities obtained in any form for at least 60 days provided that they represent in the aggregate at least 5% of the total exposures,
• existence of one or more of the debt exposures to Inps, Agenzia delle Entrate and Agenzia della Riscossione, referred to in Article 25-novies, paragraph1 of Legislative Decree.

BUDGETS 2023

Consequently, on financial statements that refer to the year 2023 with a fiscal year coinciding with the calendar year, it will be necessary to consider at least the prospective period from January 1 to December 31, 2024.

The statutory regulations also require an assessment of any post-balance-sheet events, as they may affect and challenge the going concern assumption: according to OIC 29 this may occur, for example, when the directors express their intention to propose the liquidation of the company or to discontinue operations, or if the management conditions 

of the company, such as a deterioration in operating results and financial position after the end of the financial year, require an assessment of whether it is still appropriate to rely on the going concern assumption in preparing the annual financial statements.

If the going concern assumption is no longer appropriate at the time of preparing the financial statements, it must be taken into account in the evaluations; finally, if management concludes that there is no reasonable alternative to discontinuing operations in the reporting period, but the causes of the company's liquidation have not yet been identified, evaluations for the future must still be made considering the prospect of continued operations.

IMPORTANCE OF THE NOTES TO THE FINANCIAL STATEMENTS

The notes to the financial statements must describe these circumstances and their effects on the company's financial and economic position. 

In fact, ample space must be devoted in the notes to the financial statements to assess business risks: while maintaining the centrality of going concern, the financial statements must provide adequate information to third parties about the company's state of affairs. 

For this reason, in order to be compliant with current legal regulations, it is advisable for the notes to the financial statements to provide an up-to-date picture of the company's ability to continue its operational business without the recurrence of particular uncertainties, including information on the risk factors identified, the operational methods for curbing them, and the planning measures adopted. 

If the company has followed the going concern principle without finding causes for dissolution, it is necessary to carefully evaluate the items in the financial statements, with particular attention to the potential effects of past choices, such as loss management. 

If there are no reasonable alternatives to going out of business in the reporting period, the notes to the financial statements should describe these circumstances and their procedural consequences. 

It is the responsibility of the directors to acquire all the information necessary to assess the company's ability to continue as a going concern, including considering the company's financial position and liquidity to meet its debt: reason why, the preparer of the financial statements is responsible for providing an accurate picture of the company's situation, avoiding overlooking any critical elements that could jeopardize the company's ability to continue as a going concern, and taking full responsibility for the completeness and accuracy of the information provided.

Edited by: Luigi Alfredo Carunchio, Chartered Accountant and Statutory Auditor

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luigicarunchio@valoreassociati.it

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