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The new Companies and Associations Code (CAC) - Book 3 – The financial statements

 
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The new Companies and Associations Code (CAC) - Book 3 – The financial statements

Maxime Monard, Octave Stollenwerck

Book 3 of the Companies and Associations Code (‘CAC’) covers the Belgian accounting law. The new Code is not revolutionary in this regard: the CAC largely copies the existing rules. Nevertheless, it does include a few changes with practical relevance. We have listed five important changes below.

  1. Submitting incorrect financial statements equals directors’ and officers’ liability.

Correct financial statements are of the essence for companies as well as associations. Directors are at risk of personal liability if their financial statements are incorrect. The fact that accounting law is incorporated in the CAC means that in principle, all directors are jointly and severally liable, which means that each director can be held liable for the entire amount of the damage. Under the new law that is even the case if all the managers have individual management authority and are not required to make joint decisions. Consequently, if you are a manager it is in your specific interest that for drawing up the financial statements you seek assistance from a true professional.

  1. More room for corrections to the financial statements

What if approved financial statements contain an error? Are they final? Will the financial statements including the error remain available via the Central Balance Sheet Office? There is no consensus on this point at present. The Belgian Accounting Standards Board (CBN-CNC) published a clear opinion on the matter (CBN-CNC 2014/4). Nevertheless, it remained a much debated issue.

The new law now incorporates the CBN-CNC guidelines into the Code: the financial statements may be corrected (i) in case of material errors (i.e. clerical errors and calculation errors), false or duplicate entries. (ii) In case of error in fact or in law (i.e. mistakes or wrong application of the law), including errors in assessing entries and infringement of accounting law, as a result of which the financial statements do not give a true and fair view of the result of the company, a correction of the financial statements is even mandatory. The latter category ‘error in fact or in law’ is new and involves a certain assessment element. It presumes that an accounting choice was made that with hindsight, proved unfortunate/inappropriate, e.g. a certain application of valuation rules. It does not mean, however, that each and every management decision included in the financial statements which later is deemed inappropriate, can be brought up for discussion again. This is only possible, and even mandatory, if the original entry constitutes an infringement of accounting law.

Corrections of the financial statements are made at the initiative of the board, after which the general meeting that approved the original financial statements, must give their consent. Such consent is not required if the correction merely involves clerical or calculation errors.

  1. The contents of the annual report in one single article

Section 3:6 CAC lists the information that must be included in the annual report. The information is now exhaustively included in one single article, be it with cross-references to other articles. This approach enhances correct preparation of the annual report.

  1. From now on, large associations are also required to prepare an annual report

In principle the new accounting law does not change the accounting obligations of associations and foundations. It does not introduce threshold changes other than as a result of indexation. Associations and foundations do not fall under the scope of the European harmonisation of accounting law, and this explains the threshold differences compared to companies.

As an exception to this decision with respect to the status quo, in view of professionalisation of the industry the production of an annual report is now required for very large associations.

  1. Fewer criminal sanctions for accountants

The criminal sanctions for accountants who are also statutory auditors have been greatly reduced. However, anyone who prevents the statutory auditor from performing their task still will be subject to criminal sanctions.

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