The Italian Accounting Organization (OIC) has extensively revised OIC 5, the principle governing the preparation of financial statements for companies in liquidation. It introduced a draft that has been subject to public consultation from April 9 to July 31, 2024. Currently, OIC is reviewing the contributions received, in preparation for the final version of the text. This initiative is part of a broader process of updating national accounting principles, driven by the practical difficulties encountered with the current rules on liquidation financial statements.
The revision arises from challenges in applying the current principle. Specifically, the previous framework, based on determining the liquidation capital using prospective criteria, has not been fully operational. In practice, some of the key provisions – such as valuing assets at their realizable value, even above their book value – have rarely been applied, primarily due to prudence and the liability risks associated with the actions of liquidators. Similarly, the overall estimate of the procedure’s costs has proven complex and often uncertain.
The accounting representation becomes even more delicate with the removal of the going concern assumption, i.e., the continuity of the business: with the cessation of production activities, the valuation logic radically changes, as assets and liabilities are no longer considered in terms of income generation but of their disposal.
In light of these issues, the draft proposes a substantial redefinition of the role of the liquidation financial statement. It is no longer aimed at providing an ex-ante quantification of the final realizable value but instead serves as a reporting document for the progress of the liquidation. Forecast information is not eliminated, but it is placed in the notes to the financial statements, which becomes the main tool through which the liquidators explain the procedure’s outlook, expected cash flows, and the company’s ability to meet its obligations.
The new framework also emphasizes operational consistency and simplification of application. In this context, the principle distinguishes between companies that continue, even partially, their operations and those without business continuity, proposing differentiated solutions both in terms of valuation criteria and financial statement formats.
Overall, the draft of the new OIC 5 is part of an ongoing evolution aimed at making the liquidation financial statement a tool that better reflects operational realities, strengthening its informational function and reducing the issues identified in practice.
