Financial Statements Overview

Financial Statements

• Financial statements are accounting documents that provide a true and fair view of a company's assets, liabilities, financial position and economic result (profits/losses) for a financial year.
• They serve to verify the state of assets (static aspect) and profitability (dynamic aspect) of a company periodically.

Applicable Provisions

• Italian Civil Code (articles 2423 to 2435-ter) and National accounting standards (issued by OIC) apply.
• International Accounting Standards (IAS/IFRS), issued by the IASB and recognised by the EU, are also applicable.

European Union Regulations

• Fourth Company Law Directive 78/660/EEC (replaced by Directive 2013/34/EU) on accounting standards applies.
• Seventh Company Law Directive 83/349/EEC (replaced by Directive 2013/34/EU) relates to group accounts.
• Regulation 2002/1606/EC governs the application of international accounting standards (IAS/IFRS).

General Principles

• Financial statements must be clear and provide a true and fair view of a company's assets, liabilities, financial position and results.
• Financial statements must present fairly the financial position, financial performance and cash flows of an entity, aligning with the definitions and recognition criteria from the Conceptual Framework for Financial Reporting (IAS 1).

General Principles and their Application

• Clarity in financial statements is governed by rules dictating structure and content.
• True and fair view principles are realised through rules that establish valuation criteria for assets.

Additional Accounting Standards (Art. 2423-bis c.c.)

• Financial statements must be assessed prudently, considering a going concern basis and substance over form.
• Statements should account for revenues collected/received, and risks/losses during the reporting period.
• Elements should be assessed individually.
• Valuation criteria should not change from year to year.

Composition: Documents (Italian Civil Code)

• Internal documents: Balance sheet, Income statement, Explanatory notes, Cash flow statement
• External documents: Report of directors, Report of the internal control body, Report of the external legal auditor

Composition: Documents (International Accounting Standards)

• Internal documents: Statement of financial position, Statement of profit or loss and other comprehensive income, Statement of cash flows, Statement of changes in equity, Notes to the financial statements
• External documents: Report of directors, Report of the internal control body, Report of the external legal auditor

Different Types of Financial Statements

• Ordinary financial statements.
• Abridged Financial Statements (art. 2435-bis c.c.).
• Financial statements of micro-enterprises (art. 2435-ter c.c.).

Invalidity of the Resolution

• No action for nullity or annulment can be taken if the following year's statements have already been approved.
• If the external auditor has a positive evaluation, only shareholders representing at least 5% of the share capital can contest the resolution.
• CONSOB has the power to contest financial statements for listed companies.

The Distribution of Profits

• Resolution to distribute profits (dividends) is important.
• Previous year's capital losses are considered.
• Reserves (legal, statutory, optional) are noted.
• Profits that can be distributed are outlined.
• Leonine pact limitations and special share categories are addressed.
• Fictitious profit distribution and its implications are defined.

This quiz covers the essentials of financial statements, including their purpose, applicable accounting provisions, and relevant EU regulations. Understand the general principles that govern financial reporting for companies.