Audit Manager at RSM Poland
The main task of financial reporting is to provide information about an entity's financial position to any interested parties (stakeholders). In order to meet this requirement, financial statements should present a fair and true picture of the condition of the entity’s assets and liabilities, its financial position and financial result. How does one understand such a statement?
The law does not define it. However, given the overriding objective of accounting, it should be assumed that the information provided in the financial statements cannot be misleading to its recipients.
So far, a fair and true representation could be provided to the extent that the provisions of the Polish Accounting Act allow. With the amendment of the Act, the provisions of the Financial Reporting directive were implemented, and Article 4 (1b) was introduced, thereby opening the Accounting Act on the changing and complex reality, which is hard to encapsulate in the 86 articles of the provisions of the Act.
Article 4 (1b) of the Accounting Act states that “if, in exceptional circumstances, the application of a particular provision of the Act would not allow a fair and true presentation of the assets, liabilities, financial position and financial result, the entity does not apply that provision and justifies the reasons for its non-application in the additional information and determines the impact that the non-application of the provision exerts on the representation of the assets and liabilities, financial standing and financial result of the entity.”
Not sure if the accounting data you receive is reliable and accurate?
FIND OUT MORE
This approach is new, but it generates enthusiasm among the managers who for years, under the umbrella of the old law, had been in two minds about how to present transactions in the financial statements so as not to misrepresent reality while remaining in line with the balance sheet provisions.
However, does this mean that the provisions of the Accounting Act cannot be applied whenever it is found that an alternative way of presenting data will be better than what the Act provides? Absolutely not.
When considering whether a particular set of circumstances qualifies for a derogation, it is worth emphasizing the part of the provision that states it should be applied in exceptional cases. As defined by the Accounting Standards Committee, this means that we can benefit from a derogation only when we are dealing with situations which the legislator was not able to foresee during the legislative process or are so complex that it was impossible to make specific provisions for them.
For example, taking the above under consideration, it is impossible to rely on the analyzed provision and revalue any real property shown in fixed assets to market value. Real property ownership is a common situation, and the way in which valuations are made to ensure a fair and true picture is regulated in the Act.
Should you be interested in this subject, we encourage you to familiarize yourselves with the discussion of the Accounting Standards Committee presented in the Public Commentary on the Implementation of Article 4 (1), (1a) and (1b) of the Accounting Act draft for discussion, issued in June 2017.
Subscribe to RSM Poland Newsletter to stay up-to-date on all legal, financial and tax matters. Benefit from the expertise of our professionals.