As of 1 January 2025, the French chart of accounts will change and significantly alter the way exceptional transactions are recorded.
In addition to the practical organisation that this may represent for accounting and financial departments, it is important to anticipate the possible consequences for contracts based on values taken from the profit and loss account. This could, for example, have an impact on profit-sharing contracts, employee profit-sharing or management bonuses. In such cases, contracts may need to be updated before the end of 2024.
French accounting regulations will change with effect from1. January 2025. Among other changes, we can mention the presentation of financial statements and the overhaul of the methods for recording exceptional transactions.
The ANC (French Accounting Standards authority) regulation 2022-06 aims to reduce the volume of transactions that can be qualified as exceptional for the purposes of presenting the income statement.
Income and expenses directly related to a major and unusual event may now be recognised as exceptional items.
This new conceptual approach implies analysing the transactions on a case-by-case basis and in the light of the concerned entity. The same transaction could be described as routine for one company but exceptional for another.
Conversely, some transactions that were previously recorded as exceptional items are no longer likely to be, except in special cases. For example, disposals of fixed assets will now be recorded as ordinary income (operating fixed assets) or financial income (financial fixed assets). For example, investment grants received, received balancing subsidies and incurred tax penalties and fines will be recorded as operating income.
For some entities, the new definition may lead to significant variations and different balances between ordinary income and extraordinary income. What will no longer be included in exceptional items will be included in ordinary items or financial items.
While, at first sight, the consequences are mainly linked to a new way of reading the company’s income statement, they may have an impact in other areas. This applies in particular to contracts entered into by the company that mention quantified criteria taken from the income statement.
For example, if the company has entered into an employment contract with an employee manager, whose annual bonus is calculated on the basis of operating profit, from 2025 the employee’s bonus will be impacted by the sale of fixed assets.
Similarly, if a profit-sharing contract has been signed with all employees, the amount of which is calculated on the basis of operating profit, this will also be affected by the new regulations.
It therefore seems useful to anticipate this reform, to look at current contracts involving values taken from the profit and loss account and to measure whether the reform may have a favourable or unfavourable impact on the initial objective of the contract. If necessary, contracts should be updated before the end of 2024.
The HLB GROUPE COFIME teams will be happy to carry out this analysis with you.
