Aktuelles

Accounting for off-balance-sheet transactions in notes

With respect to off-balance-sheet transactions, German lawmakers provide two alternatives for reporting in notes, which are often confused in practice. Sometimes too little but often too much information is reported. The following information is required:

(1)       the type and purpose and risks, benefits and financial effects of transactions not contained on the balance sheet, if the risks and benefits are material and the disclosure is necessary in order to assess the company’s financial situation (§ 285(3) of the Commercial Code);

(2)       total other financial obligations that are not contained on the balance sheet and need not be reported as a legal liability or as a transaction not contained on the balance sheet, if this information is important in assessing the financial situation; and “thereof” notes for obligations existing with affiliated or associated companies (§ 285(3a) of the Commercial Code).

These two types of indications initially share in common that obvious information and insignificant transactions do not need to be reported. The indications thus differ in relation to their scope. The following applies in this regard:

(1)       A statement on a transaction not contained on the balance sheet might read as follows, for example:

“We are using the new operating grounds by way of an operating lease [type]. We arranged things in this way so as not to permanently dilute our equity ratio due to a mere balance sheet extension [purpose]. Though in the coming 20 years we will be charged with annual lease installments of TEUR 500 [risk, financial effect], we currently do not have to finance an acquisition of EUR 10 million [benefit, financial effect]. After the expiry of the basic term of lease, we can choose between termination, renewal for a further 10 years or a purchase [benefit].”

Surprisingly, lawmakers require that “risks and benefits” and not “risks and opportunities” be reported. Lawmakers chose the wrong term here, as it is not the risk but the detriment from the transaction that needs to be reported (e.g., in the present case, that an operating lease is more expensive than a purchase). Hence, the “detriment and benefits” and not the “risks and benefits” should be reported, making the terms consistent again.

(2)       The same transaction reported as an “other financial obligation” would merely read as follows:

Period
Obligation TEUR
Next year 500
Next 2 to 5 years 2.000
As of 6 years 7.500
Total amount 10.000

 

The indication is much shorter. Neither the type and purpose nor the detriment and benefits need to be reported. Required is merely a statement of financial obligations similar to a statement of liabilities specifying amounts (“financials”) and dates.

(3)       The two types of indications can therefore be distinguished as follows: transactions motivated by accounting policy are to be reported as transactions not contained on the balance sheet. These include, for example, sale-and-lease-back transactions and transactions with special-purpose entities. In contrast, the more accounting policy motives recede into the background, the more mere “other financial obligations” exist. Lease and operating lease relations can therefore only be assessed contingent on the specific case.

There are size-related options: Every company must provide information other financial obligations. Yet, only large companies have to provide all information on transactions not contained on the balance sheet, while mid-sized companies can waive information on risks and benefits, and small and micro-sized companies can forego the disclosure entirely. The following chart provides a summary:

  Micro Small Medium Large
Transactions not contained on the balance sheet no no Risks and benefits need not be specified ja
Other financial obligation yes yes yes yes
 

Yes: The information must be provided and disclosed. No: The information is not necessary.

 

Mark Schüttler, WP/StB
MOORE STEPHENS Westfalen AG

Back

Corona Information for Germany N°1

Here we inform you about the most important measures and information from the Federal Republic of Germany and its federal states.

Read more

MO(O)RE NEWS

This issue of our newsletter presents the latest developments in (international) tax law, accounting, digitalization and business law.

Read more

Summarised Tax Information for Germany

Our summarised tax information for Germany is an abridged version of current tax and social security legislation, as at January 2020.

Read more