Liquidation Financial Statements: The New OIC 5 and the New Valuation Criteria

The Italian Accounting Standards Board (Organismo Italiano di Contabilità – OIC) has recently published the final version of the new OIC 5 “Liquidation Financial Statements”, which entirely replaces the previous version of the standard and redesigns its valuation criteria and the financial statement formats required by art. 2490 of the Italian Civil Code. The new text applies to liquidation financial statements for financial years beginning on or after 1 January 2027, with the option of early application to financial statements for the financial year beginning on or after 1 January 2026 (para. 115, OIC 5).

1. The reasons for the revision. The revision, which the OIC attributes to the findings of empirical surveys carried out among practitioners, stems from the fact that the previous rules were not fully applied in practice: valuation at realisable value, then the general criterion, was often disregarded by liquidators on prudential grounds where it exceeded the carrying amount, and the provision for liquidation costs and charges was recognised only in part. Companies that have already applied the previous version may nonetheless continue to do so until the end of the liquidation in progress (para. 116, OIC 5).

2. The new general valuation criterion for assets. The most significant change concerns the valuation criterion. The new OIC 5 abandons realisable value as the ordinary criterion and replaces it with the lower of the net carrying amount at the start of the liquidation and the realisable value in liquidation, i.e. the estimated price obtainable from the market net of direct costs of sale and disposal (para. 8, OIC 5), which does not necessarily coincide with market value.

The criterion is applied to each category: intangible and tangible assets (paras. 41-48), equity investments (paras. 49-54) and debt securities (paras. 55-58) are subject to the same comparison, while receivables are measured at their estimated realisable value (paras. 59-61). For all these items, the amortised cost method and discounting are abandoned, as they are no longer consistent with a perspective in which what matters is the amount actually realisable. The same applies to payables, which are recognised at their expected settlement amount (paras. 77-80, OIC 5).

3. The exception: the alternative valuation criterion. Paragraphs 86-88 of OIC 5 nonetheless allow an asset to be measured at realisable value even where this exceeds its carrying amount, provided that specific conditions are jointly met: the realisable value is significantly higher; the asset can be sold without modifications that would delay its disposal; the sale is substantially certain, with an identified buyer and advanced negotiations; and the realisable value can be reliably determined. The resulting revaluations are recognised in the new income statement item A5-ter “Revaluations from the liquidation procedure” (para. 88, OIC 5), and the exercise of the option is disclosed in the notes to the financial statements (para. 102, OIC 5).

4. The end of the provision for liquidation costs and charges. The new standard no longer requires a general provision to be estimated, but instead requires an assessment of whether any onerous contracts exist under OIC 31 (paras. 71-76, OIC 5). Costs that are necessary and functional to the procedure - the liquidator's fees, essential staff, interest, utilities, rent for the company's premises - are recognised on an accrual basis, as they generate benefits connected with the liquidation itself. The position is different for costs providing no benefit, such as unused warehouses or unsaleable goods, which give rise to an onerous contract with a corresponding provision (paras. 75-76, OIC 5).

5. The new financial statement formats. The formats differ depending on whether or not the company continues its business during the liquidation. For companies that do not continue their business, the balance sheet (Appendix A, OIC 5) abandons the distinction between current and non-current assets, replacing it with a classification by nature - intangible assets, tangible assets, equity investments, receivables, inventories, cash and cash equivalents (paras. 12-13, OIC 5). Companies within the size thresholds of arts. 2435-bis and 2435-ter of the Italian Civil Code may adopt the simplified format in Appendix E or the ordinary formats with the related simplifications (para. 23, OIC 5), without additional burdens.

Where the business continues, even partially, the ordinary formats remain applicable (Appendix B, OIC 5), supplemented by the new item E “Assets held for liquidation”, which includes the assets of business units not under provisional operation (paras. 26 and 105, OIC 5). In the income statement, for both types of company, new items have been introduced: A5-bis “Income from the liquidation procedure”, B14-bis “Charges of the liquidation procedure” and the aforementioned A5-ter (paras. 14 and 27, OIC 5), in order to isolate the effects of the procedure from ordinary operations.

6. First financial statements, final financial statements and revocation of the liquidation. In the first financial statements following the appointment of the liquidators, the differences arising from the new valuation criteria constitute a change in accounting policy and are recognised in the equity reserve “Liquidation adjustments” (paras. 33-34, OIC 5). In the final financial statements, unlike interim ones, any assets not yet realised are measured at realisable value even where this exceeds their carrying amount, since the document must indicate the share due to each shareholder (para. 96, OIC 5). Where the liquidation is revoked (art. 2487-ter of the Italian Civil Code), the ordinary going-concern criteria apply retrospectively in accordance with OIC 29, and the related differences are recognised in retained earnings (paras. 110-111, OIC 5).

7. Conclusions and practical aspects. The new OIC 5 marks a change of perspective: from a forward-looking tool for estimating the recoverable capital, liquidation financial statements become a tool for reporting on the progress of the procedure. This results in a more prudent approach to valuations, balanced by the simplification of liquidation charges, where the general provision gives way to a targeted review of only those contracts providing no benefit to the procedure. Nevertheless, when applying the alternative valuation criterion, a rigorous case-by-case review of all the required conditions remains necessary, together with an adequate explanation in the notes to the financial statements of any changes in valuation criteria, as required by art. 2490, para. 4, of the Italian Civil Code.