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Accounting for a change in dividend proposal after the preparation of the financial statements but before its adoption

Accounting for a change in dividend proposal

Any changes made to the dividend proposal after the preparation and the date of the financial statements is a non-adjusting event. These changes are therefore not recognised in the financial statements after the preparation of the financial statements.

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Fred Versteeg

Partner Department of Professional Practice

KPMG Nederland

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What’s the issue?

Under Dutch GAAP, a company is allowed to prepare the balance sheet after proposed profit appropriation and thus recognise the dividend proposal by the management board after balance sheet date but before the preparation of the financial statements as a liability in the balance sheet. As a consequence of COVID-19, the situation might arise that, before the adoption of the financial statements, the management board may decide to adjust (generally reduce) the amount of the dividend. The question arises if and how to account for this in the financial statements.

Getting into more detail

After the preparation of the financial statements by the management board, up to the date of adoption of the financial statements by the general meeting, events that provide further information about the actual situation as of the reporting date are recognised in the financial statements, only if they are indispensable for the insight regarding the equity and result of the company.

The recognition of the dividend proposal by the management board after the balance sheet date but before the preparation of the financial statements as a liability in the balance sheet is an exception to the general rule for recognising subsequent events that provide no further information about the actual situation as of the reporting date (so-called ‘non-adjusting events’). This recognition is only possible in a balance sheet prepared after proposed profit appropriation and is limited to the period up to the date of preparation.

Although a dividend proposal after balance sheet date is a new event after the balance sheet date, the proposed dividend distribution is based on the financial position and liquidity of the company as at the end of the financial year.

In our view, any changes to the dividend proposal after the preparation of the financial statements, due to for example COVID-19, would not be indispensable for the insight regarding the equity and result of the company at the end of the financial year. Therefore, we consider an adjustment to the already prepared financial statements not necessary. This is in line with RJ-Uiting 2020-5 regarding the impact of the coronavirus on the financial statements 2019 prepared but not yet adopted, which states that developments resulting from the outbreak of the coronavirus in the period between the preparation and the adoption of the financial statements would not necessitate adjustments to the financial statements unless the going concern assumption is no longer appropriate.

More information

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