Provision for not performed holidays

Ordinance of the Finance Ministry (OMFP) no. 1802/2014 for the approval of the Accounting Regulations regarding the individual annual financial statements and the consolidated annual financial statements, as subsequently amended and supplemented, it stipulates in point 338 that the amounts due and not paid to the staff until the end of the financial year (rest holidays and other personnel rights), respectively the possible amounts which are to be collected from it, related to the current financial year, but which are to be paid/collected during the next financial year, are registered as other debts and debts related to the personnel.

Rest holidays are registered on the account of debts when their amount is commensurate with the salary states or other documents justifying the respective amount.

In case the employer does not have supporting documents regarding the amounts related to the unused rest holidays, these being calculated on the basis of estimates made at the balance sheet date, he will register the related provisions.

Point 370 states that, at the balance sheet date, the value of a provision represents the best estimate of the probable expenses or, in the case of an obligation, of the amount necessary for its extinguishment. As a result, the provisions cannot exceed, from a value point of view, the amounts that are necessary to extinguish the current obligation at the balance sheet date.

The carrying out of the rest holiday by the personnel of an entity is governed by the provisions of the Labor Code approved by Law no. 53/2003, with the subsequent modifications and completions, art. 144-153. As a general principle, all the rest of the holidays must be performed each year. In the situation where the employee, for justified reasons, can not consummate, in whole or in part, the annual rest holiday to which he was entitled in the respective calendar year, he will be entitled to it grants the rest holiday not performed within 18 months starting with the year following the one of the right to annual holiday.

Regarding the register in the accounting system of the rest of the holidays which has not been performed, mention the following details:

According to point 359 of the accounting regulations approved by the Ordinance of the Finance Ministry (OMFP) no. 1802/2014, a contingent liability means:

  1. a) a potential obligation, arising as a result of past events, prior to the balance sheet date and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, which cannot be entirely under the control of the entity; or

ba current obligation arising as a result of past events, prior to the balance sheet date, but which is not recognized because:

– it is not certain that resource exits will be required to settle this debt; or- the value of the debt cannot be assessed sufficiently credibly. An entity will not recognize in the balance sheet a contingent debt, which is presented in the explanatory notes.

If an entity has an obligation jointly committed with other parties, the part assumed by the other parties is presented as a contingent liability.

Contingent liabilities are continually evaluated to determine if an outflow of resources incorporating economic benefits has become probable. If it is considered necessary to exit resources, generated by an element previously considered a contingent debt, a debt or a provision will be recognized, if any, in the financial statements for the period in which the change of the event has taken place, except where it is not any credible estimate can be made.

Contingent debts are distinguished from provisions by the fact that:

  1. a) the provisions are recognized as debts (assuming that correct estimates can be made), as they are current obligations at the balance sheet date and it is probable that resources will be required to discharge the obligations; and
  2. b) contingent debts are not recognized as debts, because they are:

– possible obligations, but for which it must be confirmed if the entity has a current obligation that can generate an outflow of resources; or

– current obligations that do not meet the recognition criteria in the balance sheet (because either it is not probable that a reduction of the entity’s resources will be necessary to extinguish the obligation, or a sufficiently credible estimate of the value of the obligation cannot be made).

Regarding the registration of the not performed holidays till at the end of the financial year, the accounting regulations approved by Ordinance of the Finance Ministry (OMFP) no. 1802/2014 stipulate that the amounts due and unpaid to the staff until the end of the financial year (rest holidays and other personnel rights), respectively the possible amounts to be collected from it, related to the current exercise, but to be paid/collected in the next financial year, it is recorded as other debts and debts related to the personnel.

Rest holidays are registered on the account of debts when their amount is commensurate with the salary states or other documents justifying the respective amount. In the absence of these, the amounts representing rest holidays are recognized in the account of the provisions. When registering for rest holidays, account is taken of the provisions of the legislation in force, regarding how to perform them.

According to the principle of prudence, when preparing the annual financial statements, the recognition and evaluation should be performed on a prudent basis and, in particular:

  1. a) the profit realized at the balance sheet date can only be included in the profit and loss account;
  2. b) the debts arising during the current financial year or a previous financial year are recognized, even if they become evident only between the balance sheet date and the date of its preparation;
  3. c) impairments are recognized, regardless of whether the result of the financial year is loss or profit. The adjustments for impairment or loss of value are recorded on the expense accounts, regardless of their impact on the profit and loss account.

So, in the case of provisions, the principle of prudence, which does not allow, the creation of excessive provisions, must be taken into account first. At the same time, articles 369 and 387 mention that: “Provisions are intended to cover debts whose nature is clearly defined and which at the balance sheet date is likely to exist or is certain to exist, but which are uncertain as to the value or date. (…) The amount recognized as a provision must be the best estimate at the balance sheet date of the costs necessary to settle the current obligation. The best estimate of the costs necessary to settle the current debt is the amount that an entity would pay, rationally, for extinguishing the obligation on the balance sheet date or for transferring it to a third party at that time. “

Consequently, the expenses with the rest holidays not made at the end of the financial year are recorded in this exercise as follows:

– on account of debts (641 = 4281) – if their amount is commensurate with the salary states, or

– on account of the expenses with the provisions – the leave not made until the date of approval of the financial statements – 6812 = 1518, at the estimated value.

When registering the holidays on the payment state, the established provision passes on the income, by registering 1518 = 7812.

If, as of 31.12.2019, there is a provision evidenced in the balance of verification of the company for rest days not completed for the year 2018, it must be reviewed and recalculated and if an additional difference appears, it is recorded as the expense related to the year 2019.