Statement of affairs
|Statement of affairs|
Statement of affairs is a record of current conditions of some task. Statement of affairs is regularly presented to top management when implementing some entity, program or project. It contains information about conditions, position, status, schedule, etc.
Statement of affairs in law means the worst-case scenario financial statement describing the assets at their liquidation value. It is used to determine how the company would look like in worst case of imminent bankruptcy. That can be used in assessment of company liquidation value.
The Statement of Affair (SOA) is a summary of assets and liabilities. This report is a very important document within the bankruptcy of company. It shows the net book value and amount expected to make aware of the date of Insolvency of the business. SOA is a document comparable to the balance sheet. Just like the balance sheet, assets are on the right side and liabilities on the left. Even though we call it a statement of affairs, it is really two sets of data. One set comes from the beginning of the year, and the second is made at the end. This displays the changes in assets and liabilities over the course of the period.
The objective of the Statement of Affair
The objective of the Statement of Affair is to supply information to various parties with an interest in the business mainly its shareholders, creditors government agencies and the Insolvency Practitioner involved (but could also be worthwhile for employees, customers, competitors and people interested in buying the business).
The Statement of Affair shows the book value of the business's assets as would be shown in a standard set of accounts. It also displays the value that the person completing it considers they can be sold for or how much can be regained. It also outlines the duties of the business as regards payments due and lists its creditors and shareholders. As a result, outlines how much money can be accessibleto meet the creditor and shareholders claims once the proper procedure is finished. Normally the Statement of Affair does not take account of costs of disposing of the assets and dealing with claims from the varied sides.
Person who may be required to give a Statement of Affairs or Statement
The directors or owners of the company are often committed to do a Statement of Affairs either before or after an insolvency event has occurred. This document is used for the investigation the affairs of the business by the Insolvency Practitioner and for controlling of actual performance in terms of worth recovered from assets.
The following person may be required to give a Statement of Affairs or Statement:
- Person who is or has been officers of the company- . directors and company secretary;
- Person who has taken part in the creation of the company within one year of the appointment;
- Person who is employees or has been employees in the one year before appointment;
- Person who is or has been officers of a collaborate officeholder - current or within the one year prior to appointment.
Normally it is the person who supervises the finance function but this is needlessly the case. It is needed that all directors appreciate the financial position of a company and that there is enough and complete information accessible to make the financial position.
Information which should be contained on the SOA
The SOA is a pivotal step in the insolvency procedure, so fulfillment it good is very important, and all the information has to be precise and real. The report should contain:
- Asset valuations.
- The most recent balance sheet and management accounts.
- A total list of employees with addresses, salaries and any relevant information.
- Details on VAT (amount owed/not paid).
- Amounts owed to the bank (including any director/shareholder imprests)
- All existing debts.
The SOA is used in the following situations of insolvency:
- Voluntary decommissioning;
- Voluntary Arrangements of company;
- Obligatory liquidation.
In case of voluntary decommissioning the firm's monetary position could be shown at a creditors or shareholders’ meeting. If the company enters into Administration, the Administrator can demand the Directors to make a SOA to be contained within the Administrators’ Targets. In case of the firm is in face of liquidation, the Official Receiver, liquidator or the preordained Insolvency Practitioner are responsible for making the Statement of Affairs.
A balance sheet is part of a financial statement, therefore it must be 100% accurate, containing no estimated figures and it has to show the company's exact financial position.
Whilst the Statement of Affairs offers information on assets and liabilities, it doesn't need to be correct to the penny but needs to show the best-estimated figures on the information available at the time.
Statement of Affairs Vs Balance Sheet
A balance sheet is part of a financial statement, therefore it must be 100% exact, including no approximate date and it has to display the company's financial position.
The Statement of Affairs shows information on assets and liabilities, it doesn't need to be right to the penny but requaries to show the estimated figures on the information available at the time.
Important Differences Between SOA and Balance Sheet:
- The base of preparation of the Statement of Affairs is a partly single entry and partly double entry system, the base of making of Balance Sheet is a double entry system.
- In the balance sheet, capital comes from the ledger accounts. Otherwise, in terms of the statement of affairs, capital in solely a balancing figure.
- A Balance Sheet is a very significant of the financial statements, but the SOA is not a part of the financial statement.
- The Balance Sheet is exac, because it is prepared after a finished procedure, but the exactitude of the Statement of Affairs is very less, as it is ready from not complete records.
- In the Balance sheet, there are no approximate dates, however, through deficient records, suppositious figures are taken.
- Statement of Affairs is made on either opening or closing date, but Balance Sheet is prepared for a definite date.
- There is no definite format for the Statement of Affairs, whereas Balance Sheet has a special format, on the basis of which it is made
- Cohen, J.A. (2011). Intangible Assets: Valuation and Economic Benefit, John Wiley & Sons.
- Mejorada N.D, (2000), Advanced accounting, Advanced accounting, 69-102
- Shumway T., (2001). Forecasting bankruptcy more accurately: A simple hazard model. The journal of business, 74(1), 101-124
- Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0). Prentice Hall.
- Wilson, R. M. S., & Chua, W. F. (1993). Managerial accounting: method and meaning (Vol. 2). London: Chapman & Hall.
Author: Beata Furmanek