Impact of the military conflict in Ukraine and international sanctions on annual financial statements at 31 December 2021

 

The Chamber of Auditors of the Czech Republic has promptly responded and issued a recommendation, to which we fully subscribe. According to the recommendation, a military conflict is an event that affects the valuation of assets and liabilities, and therefore should be disclosed as a post-balance-sheet event, or, more specifically, as a so-called non-adjusting event.

The consequences and uncertainties caused by a military conflict therefore may be only reflected in the balance sheet and the income statement of the subsequent fiscal period and should not affect the valuation of assets and liabilities disclosed in the annual financial statements for the period ended 31 December 2021 (or before 24 February 2022).

At the same, a company that has been affected by this situation, should still analyse and assess its possible impacts and describe them in the Notes to annual financial statements (and its annual report) at 31 December 2021 (or before 24 February 2022), focusing on the material impacts on the valuation of assets and liabilities after the balance sheet date in view the information available at the date the annual financial statements were prepared or signed by its authorised officers. A similar recommendation has also been issued by the Chamber of German Public Auditors for companies reporting under German accounting standards and regulations.

The essential issue that must be addressed by the company’s management in light of the recent events is the honest assessment of the company’s ability to continue as a going concern. If the management concludes that the company will be unable to continue as a going concern, it would be compelled to adjust accordingly the balances recorded in the financial statements for the year ended 31 December 2021 (or any date before 24 February 2022), because the accounting rules for companies that do not satisfy the going-concern requirement are fundamentally different.