OIC Principle 33: Accounting rules for the transition to the Italian GAAP principles

Prepared by Felice De Lillo, Fabio Pirolozzi e Veronica Cetroni

The Italian Accounting Body («OIC»), on March 25, 2020, has published the final version of the national accounting standard OIC 33 entitled «Transition to national accounting standards», which are expected to apply from annual financial statements starting on or after 1st January 2020. It is possible to apply from 1st January 2019.

It has been therefore ruled the accounting process called «Last Time Adoption» or «LTA».

In this regard, art. 1, paragraphs 1070-1071, of L. 145/2018 (Budget Law 2019), has granted to subjects which securities are not admitted to trading on a regulated market, who were previously obliged to apply international accounting standards IAS/IFRS, to be able to apply national accounting standards from the tax period preceding 1st January 2019.

It should be noted that, the indications of the principle OIC 33 come with a certain delay with respect to the start of the provision and especially with respect to the draft of the principle made available several years ago.

Scope of the application

The principle OIC 33 rules the procedures for the preparation of the first balance sheet drawn up in accordance with the provisions of the Civil Code and national accounting standards by subjects which previously prepared the balance sheet in accordance with other rules (e.g. international accounting standards IFRS, etc.), finding application both for the annual and consolidated balance sheet.

The OIC 33 does not apply in respect of companies that already prepare the balance sheet by applying national accounting standards, if the latter change. In this respect, the changes will be subject to the provisions of the OIC 29 “Changes in accounting policies, changes in accounting estimates, correction of errors, events after the end of the year” and to specific provisions of the individual standards.

Purpose of the principle

The aim of the principle is to provide to the reader of the balance sheet a clear and transparent evidence of the effects generated by the adoption of national accounting standards through both the indication of the impact that this change determines on the opening balance of the balance sheet, and the comparison with the balance sheet and economic situation and with the cash flow statement of the previous year, reported in the comparative balance sheet.

This intention is also reflected in the information that must be highlighted in the Explanatory Notes. In this regard, explicit reference shall be made to:

  • the reasons that led the company to adopt the national accounting standards and the transition date. Transition date means “the opening date of the comparative period of the first balance sheet prepared in accordance with national accounting standards. For example, if the first balance sheet prepared according to national accounting standards refer to 31.12.T, the transition date is 1st January of year T-1”;
  • the reconciliation of the net equity highlighting the main differences due to the change of principles that led to an adjustment of the balances on the transition date and on the balance sheet date, proceeding with the same procedure also for the profit and loss account and the cash flow statement, exposing such differences to the gross of the relative tax effect, with separate evidence of the same;
  • a list of the items in the balance sheet for which the company made use of the exemptions provided for in Appendix A (Business combinations, Inventories, Consolidated Financial Statements, Debt securities and Equity investments, Financial derivatives, Elimination of receivables and payables), listing the cases for which it is not necessary to provide explanations on the non-respect of the principle of retroactivity;
  • a list of balance sheet items and the reasons for which the retrospective determination was not possible.

Recognition and initial measurement

The OIC 33 rules that the company shall apply retroactively the national accounting standards in force at the balance sheet date, except in cases where the retroactive application of the principle is impracticable, despite all reasonable efforts, excessively onerous or the effects can be quantified as irrelevant for the purposes of balance sheet, according to the provisions of art. 2423, paragraph 4, of the Civil Code.

Appendix A of the principle regulates, at the same time, cases where it will not be necessary to provide further explanations on non-compliance with the principle of retroactivity.
While, in cases where national accounting standards do not differ from those previously adopted, there will be no retroactive application.

In the opening balance sheet of the first financial statements, drawn up in accordance with national accounting standards, the assets and liabilities that meet the requirements of the national accounting standards must be reported, while those that do not satisfy it must be eliminated.

The balance of differences in assets must be allocated to a net equity reserve less any tax effects, which can be determined on the basis of the adoption of the OIC 25 «Income taxes».

Assets, liabilities and net equity items shall be reclassified, where necessary, to comply with initial recognition under national accounting standards.

Civil regime of the LTA reserve

For companies that made transition from IAS/IFRS to national accounting standards, the components of the balance of differences in capital, determined on basis of the retroactive application of national accounting standards, follow the rules of Article 7-bis, of Legislative Decree 38/05 («IAS Decree»).

The latter provide, among other, that if the balance of the accounting effects associated with the transition from international accounting standards to national legislation is positive, the balance is booked in an unavailable reserve. bis, co. 4 of the Civil Code). The latter shall:

  • it shall be reduced by the amount of capital gains realized, including through depreciation, or became non-existent for effect of the write-down;
  • is also unavailable for the purposes of capital allocation and the uses required by the specific different provisions of the Civil Code (i.e. art. 2350, third paragraph, 2357, co. 1, 2358, sixth paragraph, 2359-bis, co.1, 2432 and 2478-bis, co. 4, of the Civil Code);
  • it may be used to cover losses of the year only after the use of available profit reserves and legal reserves. In such a case, it shall be replenished by setting aside profits for subsequent years.

Finally, it is worth noting that the last paragraph of art. 7-bis, of the IAS Decree also provides the tax regime of the LTA process «the provisions referred to in Article 13 of this decree and those referred to in Article 15, paragraph 1, of Decree-Law 29 November 2008, n. 185, converted, with modifications, by Law 28 January 2009, n. 2, shall apply mutatis mutandis”.

Let’s Talk

For a deeper discussion please contact:

Marco Meulepas

PwC TLS Avvocati e Commercialisti

Partner Milano

Roberto Pilati

PwC TLS Avvocati e Commercialisti

Director Milano

Felice De Lillo

PwC TLS Avvocati e Commercialisti

Partner Roma

Fabio Pirolozzi

PwC TLS Avvocati e Commercialisti

Director Roma