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
Examples of Statement of affairs
- A business startup: A statement of affairs for a business startup is a detailed report of the current financial and operational status of the business. This document includes information such as the total capital invested, current assets and liabilities, inventories, accounts receivables and payables, banking details, cash flow and current business performance. This statement helps the management to understand the progress and financial health of the business.
- A software project: A statement of affairs for a software project is a document that outlines the current status of the project. It includes information such as the current development stage, estimated timeline for completion, number of defects and bugs, list of completed tasks and any additional resources required for the project. This document is important for stakeholders to evaluate the progress of the project and make informed decisions.
- A construction project: A statement of affairs for a construction project is a report that outlines the current status of the construction project. It includes information such as the estimated timeline for completion, total cost of the project, number of workers employed, list of completed tasks, any additional resources required, and any changes to the original plan. This statement helps the management to understand the progress of the construction project and make necessary modifications if needed.
Advantages of Statement of affairs
A statement of affairs can be highly beneficial to any task, program, or project. It can provide a top-level overview of the current conditions and help to ensure that the entity is on track and meeting its goals. The advantages of having a statement of affairs include:
- Improved communication - A statement of affairs provides a snapshot of the current status of the entity, allowing for better communication between the key stakeholders.
- Increased visibility - Having a statement of affairs can provide greater visibility into the progress of the entity and make it easier to identify areas for improvement.
- Improved accountability - A statement of affairs allows for greater accountability, as it provides a clear record of the current state of the entity. This can help to ensure that everyone involved is held responsible for their actions.
- Enhanced planning - By providing a clear overview of the current status, a statement of affairs can help to make better plans for the future. It can provide a clear roadmap for the entity and can help to ensure that the goals are met.
- Improved decision-making - With a statement of affairs, it is easier to make better decisions. By having a clear overview of the current status of the entity, it is easier to identify potential issues and plan accordingly.
Limitations of Statement of affairs
Statement of affairs can be a useful tool for understanding the status of a project or program, but it has several limitations. These include:
- Not providing an accurate picture of reality: Statement of affairs only provide a snapshot of the current state of affairs, and may not reflect any changes or trends that have occurred since the statement was created.
- Not including external factors: While statement of affairs may include information about internal resources and processes, it does not consider external factors that may impact the project or program, such as legal, financial, or cultural considerations.
- Unreliable information: The accuracy of the information in a statement of affairs is highly dependent on the quality of the data being collected, as well as the expertise of the person creating the statement.
- Not capturing the full scope of a project: While statement of affairs provide a good starting point for understanding the status of a project, they may not capture all of the details necessary to fully assess its success or failure.
- Limited in time: Statement of affairs are often based on historical data, which can make them less useful for predicting future outcomes.
A statement of affairs is often used to capture the current conditions of a task or project in an organized and concise way. Here are some other approaches related to statement of affairs:
- Risk analysis: Risk analysis is a process that identifies, assesses, and prioritizes risks associated with a project. It helps determine the probability of a risk occurring and the potential impact it may have on the project if it does.
- Cost-benefit analysis: Cost-benefit analysis is a method used to determine the viability of a project. It involves assessing both the expected costs and the expected benefits of the project and comparing them to determine if the project is worthwhile.
- Feasibility studies: Feasibility studies are used to assess the potential success of a project. They involve evaluating the project's technical, economic, legal, and operational aspects to determine if the project can be successfully completed.
- Resource management: Resource management is the process of managing a project's resources to ensure that they are allocated and used efficiently. This includes managing the project's budget, personnel, materials, and equipment.
In summary, a statement of affairs is used to capture current conditions of a task or project while other approaches such as risk analysis, cost-benefit analysis, feasibility studies, and resource management are used to assess the viability of projects and manage resources effectively.
|Statement of affairs — recommended articles|
|Time period concept — Project status report — Baseline schedule — Valuation date — Due diligence — Budget manual — Opening balance — Cash control — Capital planning|
- 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