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IEFR: 1A – FINANCIAL ACCOUNTINGBASIC ACCOUNTING PRINCIPLES
The principles on which every accounting system is based • The business entity
• The going concern (continuity)
• The consistency
• The expression in monetary value
The recording of events • The accountability documents
• The materiality (completeness)
• The non-compensation
• The matching principle (=accrual based accounting)
The valuation • The individual valuation
• The prudence
• The objectivity
• The relevance
Reporting • The periodicity
• The comparability
• The true and fair view
,THE PRINCIPLES ON WHICH EVERY ACCOUNTING SYSTEM IS BASED
THE BUSINESS ENTITY
Sole trader Partnership Limited Liability Company
Tax system Personal income tax Personal income tax Corporate income tax
Formation An individual who enters into business alone to sell goods or Two or more people enter into business; usually legal agreement Number of persons registering the company following legal
to provide services = partnership deed formalities
Alone All partners share in the running of the business Shareholders appoint directors to run the business
Running the business
Own cash or loan from bank Cash from partners or loan from bank Contributions (in species or in kind) from shareholders
Financing
or loan from bank
Sole trader is personal and unlimited liable to meet Partners are jointly and severally liable for money owed by the Personal liability of shareholders is limited to their share in the
Liability
obligations of business firm company’s capital
Any legal business agreed by the partners Only the activities set out in memorandum and articles of
Power to carry out
association
activities
Separate economic entity for accounting purposes; not a Separate economic entity for accounting purposes; not a separate Separate legal entity
Status in law
separate legal entity legal entity
No disclosure obliged but need for accounting information No disclosure obliged but need for accounting information Obligation to disclose accounting information
Accounting information
Very small companies Small companies (micro companies Small companies (medium-sized enterprises) Large companies
Who? • Natural persons exercising • Small companies with legal personality that • Companies with legal personality • Companies that exceed more than one of the
independently a professional activity are not subsidiaries or parent companies • Do not exceed more than one of the following criteria on the balance sheet date of
• Organisations without legal personality • Do not exceed more than one of the following criteria on the balance sheet date the last closed financial year:
• General partnerships following criteria on the balance sheet date of the last closed financial year:
• Ordinary limited partnerships of the last closed financial year:
Annual average 10 50 50
n° of employees
Annual turnover < 500 000,00 EUR 700 000,00 EUR 9 000 000,00 EUR 9 000 000,00 EUR
(excluding VAT) (620 000,00 EUR for retail sellers of gaseous
or liquid hydrocarbons intended for motor
vehicles)
Balance sheet 350 000,00 EUR 4 500 000,00 EUR 4 500 000,00 EUR
total
What? • Legislation on annual accounts does • Legislation on annual accounts applicable • Legislation on annual accounts applicable • Legislation on annual accounts applicable
not apply • Double-entry bookkeeping • Double-entry bookkeeping • Double-entry bookkeeping
• Simple accounting • Annual accounts according to micro model (= • Annual accounts according to abbreviated • Annual accounts according to full model
• Internal annual accounts without abbreviated model with limited notes) model • Amounts expressed in EUR
predetermined model • Amounts expressed in EUR • Amounts expressed in EUR
, IEFR: 1A: FINANCIAL REPORTING
IMAGE ORIENTED VS TAX OPTIMISATION
Management has several options in the valuation of expenses in order to present the financial position and performance as high or low as possible in the
financial statements:
- Image oriented:
o Objective : To present the financial position and performance in a favourable light.
o Method : This approach involves making accounting choices and assumptions that enhance the company's perceived financial health,
attractiveness, or stability.
- Tax optimization:
o Objective : To minimize tax liabilities and optimize the use of available tax incentives.
o Method : This approach involves making accounting decisions that align with tax regulations to reduce taxable income and,
consequently, the tax burden on the company.
BALANCE SHEET
IMAGE ORIENTED TAX OPTIMIZATION
Formation expenses - Capitalise - Expense
FIXED ASSETS
Intangible Fixed Assets - Development expenses: - Development expenses:
Capitalise Expense
- Intercalary interests: - Intercalary interests:
Capitalise Expense
- Self-constructed intangible fixed assets: - Self-constructed intangible fixed assets:
manufacturing price including indirect production manufacturing price excluding indirect production
costs costs
- Reversal of previously recorded write-offs: - Reversal of previously recorded write-offs:
via ‘Revaluation surpluses’ or via non-recurring via ‘Revaluation surpluses’
operating income
Tangible Fixed Assets - Intercalary interests: - Intercalary interests:
Capitalise Expense
- Self-constructed tangible fixed assets: - Self-constructed tangible fixed assets:
manufacturing price including indirect production manufacturing price excluding indirect production
costs costs
- Depreciation: - Depreciation:
straight-line declining-balance method
(declining-balance method: investments before 01/01/2020)
- Reversal of previously recorded write-offs: - Reversal of previously recorded write-offs:
via ‘Revaluation surpluses’ or via non-recurring via ‘Revaluation surpluses’
ASSETS
operating income
Financial Fixed Assets - Capitalising additional costs on acquisition - Immediately expensing on IS
CURRENT ASSETS
Amounts Receivable After - Don’t record a write-off if realisation value at BS date is - Record a write-off if realisation at BS value date is lower than
>1Y lower than nominal value at due date nominal value at due date
Stocks And Contracts In - Acquisition value of purchased inventories: - Acquisition value of purchased inventories:
Progress FIFO method (sell oldest items first, due to inflation COGS will be LIFO method (sell newest items first which are more expensive
lower → higher profit) due to inflation, increasing COGS)
- Manufacturing price: - Manufacturing price:
capitalise intercalary interests (no impact on IS) Expense intercalary interests
- Manufacturing price of manufactured inventories: - Manufacturing price of manufactured inventories:
‘full costing’ ‘direct costing’
- Manufacturing price of contracts in progress: - Manufacturing price of contracts in progress:
‘percentage of completion’ (gained profit is included) ‘completed contract method’ (only include profit once
finished)
Amounts Receivable - Don’t record a write-off if realisation value at BS date is - Record a write-off if realisation value at BS date is lower than
Within 1Y lower than nominal value at the due date nominal value at the due date
Current Investments - Capitalising additional costs on acquisition of - Immediately expensing in income statement
current investments
Cash At Bank And In Hand No choices
Accruals And Deferred No choices
Income
1
, IMAGE ORIENTED TAX OPTIMIZATION
EQUITY
Contributions - As high as possible - As low as possible
Revaluations Surpluses - Record (increase in A and L, but no impact of IS) - No difference
Reserves - Equity preferably as high as possible - Equity preferably as low as possible
→ reserving profits (reserves) increases image → not reserving profits (reserves) increases tax
orientation optimization
Accumulated Profits - Equity preferably as high as possible - Equity preferably as low as possible
(Losses) → retained profit increases image orientation → retained profit lowers tax optimization
Capital Subsidies - Equity preferably as high as possible - Equity preferably as low as possible
→ recording capital subsidies increases image → not recording capital subsidies increases tax
orientation optimization
LIABILITIES
PROVISIONS AND DEFERRED TAXES
Provisions For Liabilities - Don’t record - Record
And Charges (Recording → increases expenses on IS → lower profit and taxes)
Deferred Taxes - Apply system of deferred taxation to realised - Don’t apply system of deferred taxation to
capital gains (if imposed conditions are met) realised capital gains (if imposed conditions are met)
(am. Pay. only needs to be paid next year) (pay taxes right now to end up in lower tax bracket)
AMOUNTS PAYABLE
Amounts Payable After No choices
>1Y
Amounts Payable Within No choices
1Y
Accruals And Deferred No choices
Income
INCOME STATEMENT
IMAGE ORIENTED TAX OPTIMIZATION
Operating profit (loss) Operating result preferably as high as possible Operating result preferably as low as possible
- Maximise operating income - Minimise operating income
- Minimise operating charges - Maximise operating charges
Profit (Loss) for the period before Operating result preferably as high as possible Operating result preferably as low as possible
taxes - Maximise operating income - Minimise operating income
- Minimise operating charges - Maximise operating charges
2
, IEFR: 1A: FINANCIAL REPORTING
THE MAJOR DIFFERENCES BETWEEN BE GAAP AND IAS/IFRS
BE GAAP IAS/IFRS
FINANCIAL STATEMENTS
Statements: Statements:
- Balance sheet - Balance sheet
- Income statement - Income statement
- Notes - Notes
- Statement of changes in equity
- Cash flow table
No standard model/layout
Only minimum list of items
Classification :
Current VS Non-current
Subclassifications
Additional divisions and subtotals are possible
Prepared before appropriation of profit
BALANCE SHEET
ASSETS
FIXED ASSETS
FA: Formation expenses
Formation expenses and expenses related to capital increases or increases of contributions are
deducted from capital
Expenses related to the issue of debts are deducted from the amount received
Reorganisation expenses are explicitly excluded from capitalisation
Other formation expenses are immediately charged to the income statement
FA: Intangible Fixed Assets
Development expenses: IAS/IFRS imposes stricter conditions for capitalisation than Belgian
GAAP
Valuation at initial recognition: cost price
Valuation after initial recognition: cost price model versus revaluation model
Depreciation and impairment (= write-offs)
- For intangible fixed assets with limited useful life: amortisation
o Straight-line or consumption-based
o Amortisation is reviewed annually
o Goodwill may not be amortised, but is subject to 'impairment' test
annually
- For intangible fixed assets with unlimited useful life: impairments
o Annual ‘impairment’ test
FA: Tangible Fixed Assets
↔ charges first recorded in income statement and then Self-constructed tangible fixed assets
capitalised - Are recognised immediately in the balance sheet
Valuation at initial recognition: cost price
- All costs necessary to prepare tangible fixed assets for its intended use, as well as
estimated costs of dismantling, removing or restoring it to its original condition
- Contribution value = market price
- Subsequent costs relating to tangible fixed assets
o Maintenance and repair costs: recognised in income statement
o Major components to be replaced: separate asset
o Inspections to keep tangible fixed assets operational: are included in
book value
Valuation after initial recognition: cost price model versus revaluation model
Depreciation
- Each significant component of tangible fixed assets is depreciated separately
- Depreciation should reflect pattern by which economic benefits of tangible fixed
assets are consumed
- Depreciation is reviewed annually
Decommissioning and disposal
- Tangible fixed asset is removed from the balance sheet on final decommissioning or
disposal
- Calculation of realised gain/loss in case of revalued fixed asset is done against
revalued value: realised gain smaller under IAS/IFRS than under Belgian GAAP
1
, BE GAAP IAS/IFRS
FA: Financial Fixed Assets
CA: Current Investments
↔ distinction between financial fixed assets and current Valuation of financial fixed assets depending on classification: 3 classes
investments - Equity instruments: evidence of ownership rights in company
- Derivatives: financial contracts with value through underlying assets
- Debt instruments: evidence of contractual obligation by issuing party to repay
money according to contractual terms
↔ choice for additional acquisition costs of financial fixed Valuation at initial recognition: fair value including transaction costs, except 'financial assets at
assets fair value through profit or loss’
CURRENT ASSETS
CA: Amounts Receivable After More Than One Year
CA: Amounts Receivable Within One Year
Receivables belong to financial assets
Valuation at initial recognition: fair value including transaction costs
Valuation after initial recognition: at 'amortised cost price' using effective interest method
Impairments
- Impairment testing at least annually
CA: Stocks And Contracts In Progress
Total value ‘Stocks’ is included in the balance sheet; further subdivision is not required in
IAS/IFRS
↔ lower of acquisition value (≈ cost) and market value Valuation of stocks: lower of cost and net realisable value
↔ LIFO-method; in IAS/IFRS the LIFO-method is not Permitted stock valuation methods
allowed - Specific identification method
- FIFO-method
- Weighted average prices method
↔ choice between ‘full costing’ versus ‘direct costing’ Manufacturing price: valuation is always based on 'full costing' = both direct and indirect costs
↔ choice between ‘percentage of completion’ versus Contracts in progress: valuation is based on the 'percentage of completion' or 'completed
‘completed contract method’ contract' method, depending on the way in which 'control' is transferred
Write-offs must be recorded to bring value in line with the net realisable value
CA: Cash At Bank And In Hand
↔ cash equivalents in IAS/IFRS are current investments Cash and cash equivalents belong to financial assets
under Belgian GAAP - Cash: money immediately available
- Cash equivalents: short term investments (maximum 3 months) that are
immediately convertible into cash and not subject to financial risk
Cash or cash equivalents are recognised under a separate heading in the balance sheet
↔ cash at bank and in hand are valued at nominal value Valuation: at fair value or amortised cost, depending on classification
CA: Accruals And Deferred Income
No specific provisions mentioned under IAS/IFRS
LIABILITIES
EQUITY
E: Contributions
Equity is divided into:
- capital, including agio (share premium)
- reserves
Purpose of share premium or agio: to equalise the value of new and old shares
↔no further information on 'share premium' in notes Information on agio can be disclosed in the notes
Financial instruments can be considered as contributions/capital
Changes in equity are recognised in the statement of changes in equity
Equity components are valued at fair value
↔ own shares are recognised under current assets Own shares are deducted from contributions/capital and their realisation is charged directly to
equity
↔ Belgian GAAP: capitalisation under 'Formation Charges for increase in contributions may not be capitalised and are deducted directly from the
expenses' or immediately charged to income statement contributions/capital
Dividends may be shown separately under capital
2
, BE GAAP IAS/IFRS
E: Revaluations Surpluses
↔ revaluation possible for tangible and financial fixed Revaluation possible for tangible and intangible fixed assets
assets, but not for intangible fixed assets - Both tangible and intangible fixed assets can be valued according to cost price
model or revaluation model
- For intangible fixed assets: revaluation model only allowed if active market exists for
intangible fixed assets
Upon realisation of asset
↔ result is calculated compared to original book value, - Result is calculated compared to revalued value
excluding revaluation surpluses - Realisation of revalued assets is taken directly to equity and not through the income
statement
E: Reserves
Equity is divided into:
- capital, including agio (share premium)
- reserves
↔revaluation surpluses constitute a separate item on Revaluation surpluses are part of reserves
the liabilities side of the balance sheet
E: Accumulated Profits (Losses)
↔ profit (loss) carried forward Retained earnings
↔ balance sheet is drawn up after appropriation of result Balance sheet is drawn up before appropriation of result
Retained earnings are treated together with reserves
Changes in retained earnings must be recognised in statement of changes in equity
E: Capital Subsidies
↔ capital subsidies are recognised under separate Capital subsidies are deducted from the book value of related asset or recognised as deferred
section 'Capital subsidies' under equity income
↔ recognised partly as financial income and partly as Subsidies related to assets are recognised as income or as a decrease in depreciation expense
deferred taxes
↔ Belgian GAAP: possibility of accelerated depreciation For depreciable fixed assets: recognised as income in proportion to depreciation of related
(investments before 01/01/2020) assets
PROVISIONS A ND DEFERRED TA XES
P&DT: Provisions For Liabilities And Charges
↔ definition is formulated less restrictively Conditions for creating a provision
- The existence of an obligation based on a past event
- The settlement of the obligation is likely to require an outflow of resources
- The amount of the obligation can be reliably estimated
Provisions for major repairs and maintenance are not possible
Provisions for reorganisation are possible if a detailed formal plan has been announced or
implementation has effectively started
↔ less extensive because if amount is certain, not Provisions for liabilities and charges: liabilities for which there is uncertainty regarding timing
recognised as provision but as liability and/or amount
P&DT: Deferred Taxes
↔ only future tax liabilities are recognised in two specific Temporary differences between book value and tax value of assets or liabilities, which will
cases: deferred taxes on investment grants and deferred reverse in one or more financial years and which will increase or decrease taxes payable in the
taxes on temporarily tax-exempt realised capital gains future, give rise to deferred taxes resulting in a passive (future tax debt) and active (future tax
receivable) tax deferral
Valuation rules under IAS/IFRS are much more detailed than under Belgian GAAP
↔ no specific item for deferred tax assets (receivables) Deferred tax assets (receivables) and liabilities (debts) should be presented as separate items
AMOUNTS PAYABLE
AP: Amounts Payable After More Than One Year
Amounts payable > 1 year (Belgian GAAP) usually qualify as financial instruments, more
specifically financial liabilities, in accordance with IAS/IFRS
- Exception: advance payments received on orders (future disadvantage
= delivery of goods or services and not delivery of cash or other financial asset)
-
IAS/IFRS distinguishes between non-current and current liabilities, unless presentation based
on liquidity is more reliable and relevant
- A non-current liability is a liability that is not current
Certain liabilities (e.g. trade debts) are classified as current liabilities even if they are not settled
until 12 months after the reporting period
The valuation of financial liabilities under IAS/IFRS depends on their classification as financial
liability
- Financial liabilities are classified into two valuation categories:
- Financial liabilities measured at amortised cost
3
, BE GAAP IAS/IFRS
Financial liabilities measured at fair value through profit or loss
Financial liabilities held for trading: fair value through profit or loss
All other financial liabilities: amortised cost unless fair value option is applied
AP: Amounts Payable Within One Year
Amounts payable ≤ 1 year (Belgian GAAP) usually qualify as financial instruments, more
specifically financial liabilities, in accordance with IAS/IFRS
- Exception: advance payments received on orders (future disadvantage = delivery of
goods or services and not delivery of cash or other financial asset)
IAS/IFRS distinguishes between non-current and current liabilities, unless presentation based
on liquidity is more reliable and relevant
Characteristics of current liabilities
- Expectation that liability will be settled in normal course of operating cycle;
- Liability is held short-term or for trading purposes;
- Liability to be settled within 12 months of reporting period;
or
- Company does not have an unconditional right to defer settlement until at least 12
months after reporting period
Furthermore: see discussion ‘Amounts payable > 1 year’
AP: Accruals And Deferred Income
No specific provisions mentioned under IAS/IFRS
INCOME STATEMENT
No standard model for the income statement, but minimum list of items to be included
Income or revenue = income and other benefits
- Income arises from normal business operations: sales, interest, dividends, rent ...
- Other benefits: gains arising on disposal of fixed assets, unrealised gains ...
Expenses or charges = charges incurred in the ordinary course of business and losses
- Charges from normal operations: cost of sales, depreciation, wages ...
- Losses may or may not arise from ordinary course of business: cost of disasters,
cost from disposal of fixed assets ...
↔ amortise goodwill over minimum 5 years and Goodwill: annual impairment test; once recorded, impairment cannot be reversed
maximum 10 years
↔ LIFO is permitted Stocks: LIFO valuation method not allowed
↔ Belgian GAAP does not recognise deferred tax assets Deferred tax assets
↔ only deferred taxes on investment grants and on Deferred tax liabilities: are calculated on the basis of temporary differences
realised capital gains on intangible fixed assets and
tangible fixed assets
↔ disclosure in the notes Personnel expenses: shares and share options are included in personnel expenses
Provisions: obligations arising from past events that give rise to future outflows of resources
- No provisions for major repairs and maintenance
- Only provisions for restructuring possible if actual obligation to reorganise exists
↔ declining-balance method was also allowed Depreciation/amortisation: economic reality takes priority, consequently allowed depreciation
↔ Note: for new investments from 01/01/2020, the methods are:
declining-balance method of depreciation is no longer - straight-line depreciation method
accepted for tax purposes - declining-balance method
- depreciation method based on consumed working units
↔ impairments are only possible on assets with Impairments: tangible and intangible fixed assets with both limited and unlimited useful lives
unlimited useful lives; however, additional are tested for impairment annually
depreciation/amortisation is possible for assets with
limited useful lives
4
, IEFR: 1A: FINANCIAL REPORTING
VALUATION
BALANCE SHEET
A: FIXED ASSETS
INTANGIBLE FIXED ASSETS
UPON ACQUISITION
Purchase from third parties
21…0 IFA – Acquisition value 4110 VAT to reclaim 489 Other amounts payable
Asset account (BS) Asset account (BS) Liability account (BS)
Increase Increase Increase
Debit Debit Credit
AV = Purchase price + additional cost
Acquisition by own construction (capitalize expense: C → I )
21…0 IFA – Acquisition value 72 Fixed Assets – Own construction
Asset account (BS) Income account (IS)
Increase Increase
Debit Credit
AV = Manufacturing price = Direct production cost (+ indirect production cost)
Acquisition by contribution in kind
21…0 IFA – Acquisition value 100 Issued capital
OR
1109 Available contributions/1119 Unavailable contributions
Asset account (BS) Liability account (IS)
Increase Increase
Debit Credit
AV = contribution value – additional costs
CHANGE IN VALUATION
Amortisation
6301 Amortisation of IFA 21…9 IFA – Amortisation
OR
6601 Non-recurring amortisation of IFA
Charge account (IS) Asset account (BS)
Increase Decrease
Debit Credit
Write-offs
6309 Amounts written-off of IFA 21…9 IFA – Write-offs
OR
6601 Non-recurring amounts written-off of IFA
Charge account (IS) Asset account (BS)
Increase Decrease
Debit Credit
Reversal of amortisation
21…9 IFA – Amortisation 7600 Adjustments to amortisation on IFA
Asset account (BS) Income account (IS)
Increase Increase
Debit Credit
1
, Reversal of write-offs
21…9 IFA – Write-off 7600 Adjustments to amounts written-off on IFA
OR
120 Revaluation surpluses IFA
Asset account (BS) Income account (IS) OR Liability account (BS)
Increase Increase
Debit Credit
REALISATION
Gain on disposal
416 Other amounts 21…9 IFA – Amortisation or 21…0 IFA – Acquisition 4510 Vat due 741 Gain on current realisation
receivable write-offs value of FA
OR
7630 Gain on disposal IFA
Asset account (BS) Asset account (BS) Asset account (BS) Liability account (BS) Income account (IS)
Increase Increase Decrease Increase Increase
Debit Debit Credit Credit Credit
Loss on disposal
416 Other amounts 21…9 IFA – Amortisation or 641 Loss on current realisation of FA 21…0 IFA – Acquisition 4510 Vat due
receivable write-offs OR value
6630 Loss on disposal IFA
Asset account (BS) Asset account (BS) Charge account (IS) Asset account (BS) Liability account (BS)
Increase Increase Increase Decrease Increase
Debit Debit Debit Credit Credit
TANGIBLE FIXED ASSETS
UPON ACQUISITION
Purchase from third parties
22…0/27…0 TFA – Acquisition value 4110 VAT to reclaim 489 Other amounts payable
Asset account (BS) Asset account (BS) Liability account (BS)
Increase Increase Increase
Debit Debit Credit
AV = Purchase price + additional costs
Acquisition by own construction
22…0/27…0 TFA – Acquisition value 72 Fixed Assets – Own construction 4110 VAT to reclaim 4150 VAT due
Asset account (BS) Income account (IS) Asset account (BS) Liability account (BS)
Increase Increase Increase Increase
Debit Credit Debit Credit
AV = Manufacturing price (leave the charges previously recorded, but Amount VAT = AV * 21% Amount VAT = AV * 21%
= Direct production cost (+ indirect production neutralize it by adding this income)
cost)
Acquisition by contribution in kind
22…0/27…0 TFA – Acquisition value 100 Issued capital
OR
1109 Available contributions/1119 Unavailable contributions
Asset account (BS) Liability account (IS)
Increase Increase
Debit Credit
AV = contribution value – additional costs
2
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