The Annual Patrimony Inventory

What is the scope of the patrimony inventory?

According to the Order of the Ministry of Public Finance 2861/2009 for the approval of the Norms regarding the organization and performance of the inventory of the assets, liabilities and equity and the Accounting Law 82/1991, the scope of the inventory is to establish the existence of the assets, liabilities, and equity of the company, either quantitative-value or exclusively value. Also, by inventory the company gets the information about the assets and values held under any title, belonging to other legal or natural persons.

The inventory is key to the fair presentation of the financial position and the performance of the respective financial exercise.

Who has the responsibility for organizing the inventory?

The annual inventory of assets, liabilities and equity is usually performed at the end of the financial year, and engage the following people responsible for the process:

Administrator, who:

• appoints, by written decision, the inventory committee
• indicates the procedures for carrying out the inventory, the inventory method used, the locations, and the timetable of the operating the inventory
• approves the formalized inventory procedures, which are further shared with the inventory committee
• ensures the appropriate working conditions for the inventory committee
• decides on the final inventory outcome, after obtaining the conclusions from the finance and legal departments regarding the proposed resolution

Obligations of the inventory committee, who:

• display the inventory schedule and timetable on a visible place
• identify all the locations where the goods need to be counted
• check all measuring or weighing instruments and devices if they are in good working order
• take from the inventory manager a written statement, before starting of the inventory procedure, related to the organization of his/her inventory administration
• seals the storage spaces, in the presence of the inventory manager, whenever the inventory operations are interrupted, and inventory manager is absent
• cross – out, date and sign the warehouse slips, after the last inventory operation was performed
• verify the cash from the petty cash register and determine the cash collections in that day
• seal the storages in case the inventory manager is not present at the date and time set for starting the inventory operations and communicate this to the inventory committee or to the company’s administrator
• ensure that the inventory lists are signed on each page by the inventory committee president and their members, the inventory manager, as well as the technical experts required by the committee president to participate at the inventory
• ensure that the inventory manager mentions on the last page of the inventory lists whether all assets and monetary values under his administration were counted and recorded on these lists in his presence, as well as his/her objections, if applicable
• analyze the objections and document the final conclusions on the inventory lists
• present to the company’s administrator the recommendations within the seven working days from the ending date of the inventory operations.

How to perform the stock count?

The main procedures that the entities should consider when carrying out the patrimony inventory according to OMFP no. 2.861/2009, are summarized below.

Inventory procedures

Intangible assets and intangibles in-progress

During the inventory performance, the inventory committee will require the access to the property deeds or other legal documents attesting the legal rights over patents, licenses, trademarks, and other intangibles, for proving the physical existence of intangible assets.

Tangible assets

Lands – To inventory the plots of the land, the inventory committee should obtain all the supporting documentation for certifying their ownership

Other tangible assets and investments fully or partially put into function, but not recognized as tangible assets in the company’s books

• The inventory of the buildings consists of their identification based on their property deeds and technical files
• In case that the Company is in the process of completion of some modernization or repair works of buildings, installations, machines, equipment, means of transport and other assets, their inventory consists of the spot physical inspection, of the existing stage of the works
• Subsequently, the inventory committee records the results in a separate inventory list, which contains the name of the assets, which are subject to modernization or repair works, including the value determined based on the estimated cost from the work sheets and the actual cost of the works already done.
• Assets under the public institutions administration are counted annually, excepting the buildings, special constructions, and other assets under the management of diplomatic missions and consular offices, which are counted once at every 3 years

Both in the case of tangible assets, but also of other assets provisioned for impairment, the inventory lists will include their accounting value, less the depreciation and impairment provision as at the inventory date, for being compared with their actual value, determined based on factual findings during the physical inventory.

Intangible and tangible assets in-progress

During the inventory of intangible and tangible assets in- progress, the inventory committee will mention on the inventory lists the name of each asset and the related value determined according to the stage of execution and based on the reception notes, as well as according to the volume of the works carried out on the date of the inventory.

The inventory committee has to count the materials and equipment for being assembled and not built-in the assets yet, which are received from the beneficiaries.

Abandoned investments

The investment that are no longer executed, being suspended, or abandoned, are highlighted on the separate inventory lists, mentioning the causes of the suspension or abandonment, the approval for the suspension or abandonment and the proposed next actions in relation to these works.

Tangible assets held outside the entity

Tangible assets that during the inventory do not exist inside the entity, such as: ships, locomotives, wagons, airplanes, vehicles, etc., in the long run, or the power machines and energy equipment, work equipment and installations, devices and the measurement and control tools and means of transport sent for being repaired outside the entity are counted before they went out from the entity’s premises on a temporary basis. If not, these assets should be confirmed in writing with the entity where they are located.

 Stocks

• The stock taking is done by counting, weighing, measuring, or dicing. Goods kept in their original packaging are opened randomly, and this procedure will be documented in the respective inventory lists
• The goods suppliers have the obligation to perform the counting of the goods shipped, while the beneficiary entities will count the purchased goods that are being supplied, mentioning them in the separate inventory lists.
• Production in – progress should be also counted. These include products that have not gone through all the processing stages required by the technological production process, as well as products that, although they have been accomplished, do not have the final technical reception or have not been fully accomplished with all their parts and accessories.

The goods existing in the entity and belonging to other entities (rented, under lease, under concession, in administration, in custody, received for sale on consignment, for processing, etc.)

These are counted and highlighted on the separate inventory lists, which contain mainly the information about their reception/the delivery. The owner of the goods, who might be a natural or legal person, Romanian or foreign, receives the inventory lists within no more than 15 working days after the closing date of the inventory, following that within the next 5 working days, he/she will communicate any discrepancies. In case of identifying discrepancies, the holding entity is obliged to clarify and reconcile the differences and communicate its findings to the owner of the goods, within the 5 working days from the date of receiving the notification.

The leasing companies have the obligation to require the users to provide inventory lists of the goods that are the subject of the leasing contracts. Based on this information they can assess and book the reserves or allowances related to the assets, respectively. If the inventory lists are not provided by the lessee, the leasing company will be able to adjust for the impairment, based on the market prices available on the date of the inventory, considering the characteristics of the asset that is the subject of the lease (year of manufacture, lifetime)

The entities owning the goods are obliged to carry out the inventory and send the inventory lists for confirmation, as well as the owners of those goods are obliged to require the confirmation for the existing goods at third parties

The assets held by the employees at the time of the inventory (equipment, case weapons, tools, etc.) are counted and highlighted into the distinct inventory lists, specifying the responsible persons for keeping them. If these assets are kept on the separate evidence by departments or workplaces, these will be centralized and reconciled with the data received from the technical and operational records, as well as with those obtained from the accounting records. 

Depreciated, unusable or damaged goods, non-moving or difficult to sell, orders in – progress, abandoned or suspended, as well as uncertain or disputed claims and obligations are counted and listed on the distinct inventory sheets.

Receivables and payables from/to the third parties

The existence of receivables and payables from/to the third parties are done through the confirmation process by using the receivables and payables account statements known as “Account statement “or just using formalized reconciliation notes exchanged between parties.

The confirmations performed with the aim of the account statements could be replaced with the internal statements or periodic external statements circularized between the parties if the settlement of receivables and payables is carried out usually based on these documents.

Cash and cash equivalents

The cash at banks or at the State Treasury units are inventoried by comparing the balances recorded in the company’s books with the existing balances in the bank statements issued by the credit institutions and the State Treasury units on the last financial year day or banking day.

Cash denominated in RON and foreign currency existing in the company’s petty cash register is inventoried as at the financial year-end day, after recording all the collections and payments from the respective financial year. The inventory is done by reconciling the balances recorded in the cash register with the monetary and accounting balances.

The short-term and long-term securities are counted based on the documents that certify their ownership, such as the shareholders’ register, the documents, which support the evidence of their acquisition or free of charge grant.

The postage stamps, tax stamps, travel vouchers, meal, and gift vouchers, etc. are presented on the inventory lists at their nominal value, except for the stamps with philatelic value, which are carried out according to the procedure developed by the company’s administrators. The expired or damaged ones are reflected on the distinct inventory lists.

The assets that do not have material substance, liabilities and equity are counted based on the distinct analytical situations, and their balances are checked against the balances of the corresponding synthetic accounts, which are registered in the “Inventory-Register”.

How to document the inventory outcome?

The results of the inventory are determined by comparing the data identified factually and recorded in the inventory lists with the data coming from the technical and operational information and with their balances existing in the company’s books. The identified errors during this process have to be corrected in the operational evidence. Subsequently the company concludes on the inventory outcome by comparing the quantities recorded in the inventory lists with the technical-operational records available for each position.

The stock count minutes

The inventory committee documents the stock count outcome in the stock count minute, which contains mainly, the following fields: the date of the minute preparation, the inventory committee members, the identification data of the appointment decision of the inventory committee members, the counted warehouses, the starting and ending dates of the inventory operation, the inventory outcome and conclusions, the causes that generated the surpluses and minuses, the guilty persons, as well as the remediation adjustments and actions, the volume of the impaired, non-moving, slow-moving, hard-to-sell stocks or not contracted sales, and the recommendations for reintegrating them into the economic circuit, proposals for decommissioning the tangible and intangible assets, respectively, provisioning the inventories and any writing – offs of the scrap stocks; any findings regarding the maintenance, storage, conservation of the assets held, as well as other aspects related to the inventory management.

The inventory registers

The inventory register represents a mandatory accounting document, which comprises the outcome of the inventory of the assets, liabilities, and equity items, classified by their nature in accordance with the balance sheet categories. The inventory register is prepared based on the inventory lists, inventory minutes and analytical inventory statements, as supporting documents of each balance sheet items.

The inventory register is prepared while the balance sheet accounts are finalized, including those related to profit tax, and adjustments for depreciation or impairment.

The inventory registers and the trial balance is the basis for the preparation of the balance sheet, which will reflect also the results of the inventory.

Which are the accounting and fiscal implications of the inventory and how are these reflected in the company’s books?

The inventory committee determines the physical inventory values by applying the prudence principle meaning that the allowances, depreciation, or impairment will adjust these values. If the inventory value is higher than the asset value recognized in the accounting books, the inventory committee will highlight these assets at that value already recognized in accounting. Otherwise, the assets will be highlighted in the inventory lists at the inventory value.

Accounting impact

• Identifying the depreciation/impairment adjustment

The inventory commission propose to provide for impairment the depreciated or impaired assets identified during the inventory process or book the extra amount of depreciation, supported by the explanations related to the factors, which caused the depreciation and impairment.

• Identifying the surpluses on the inventory management

If during the stock count, the inventory committee identifies surpluses on inventory management, the respective goods are valued and recognized in the accounting books at their purchase cost, also considering the market price at the date of identifying the surplus or the purchase cost of the similar goods. The surpluses of the tangible and intangible assets identified during the inventory are recognized in the company’s books as the investment subsidies. In case of the public institutions, if the inventory committee identifies the surplus on the petty cash, this is reimbursed to the budgets, where the petty cash accounts were financed from.

• Identifying the minuses on the inventory management

The missing goods identified during the inventory are valued and recognized in the accounting books at their accounting value. If the missing or damaged items from the inventory can be recharged to the guilty persons, the company’s administrator has to recharge the missing goods at their replacement value. In case that the missing goods are re-chargeable to guilty persons, but are unavailable for the acquisition on the market, the rechargeable value is valued by the technical experts nominated by the inventory committee.

• Compensations between the identified pluses and minuses on inventory management

When determining the value of the deficiencies, assuming that the inventory management deficiencies are not considered fraud, the possibility of compensating them with the identified surpluses is considered, if the following conditions are met.

There is a risk of confusion between the sorts of the same material, due to the similarity in terms of their aspect: color, design, model, dimensions, packaging, or other elements.

The identified plus or minus differences referring to the same inventory management period and the same management.

Compensation is not allowed if it was proved that the identified shortages on the inventory is the result of the theft or goods degradation, or due to the responsible persons’ fault in-charge with the inventory management, respectively. Compensation between the pluses and minuses on inventory management is done exclusively for the similar amounts.

Explanations required by the inventory manager

The inventory committee requires written explanations from the persons who are responsible with the inventory management, for following-up the claims settlement, the reasons for the identified surpluses or deficits, the goods obsolescence, as well as the damage due to the expiration of the claim’s period limitation, etc. Further the explanations received, and the documents analyzed, the inventory committee concludes on the nature or causes of the differences and proposes the solutions for reconciling and regularizing the differences between the accounting data and the actual data.

Fiscal impact

Impact on the profit tax

Expenses related to missing from inventory management or obsolete stocks or depreciable fixed assets, non-attributable, are not deductible, excepting on the following situations:

• depreciable fixed assets/assets destroyed because of the natural calamities or other causes of force majeure, under the statutory ruled conditions
• the depreciable fixed assets/assets non-ensured
• the impaired depreciable assets/fixed assets degraded in quality if proof of impairment is provided. This condition is considered fulfilled both, either when the destruction is carried out by own means, or if the stocks or depreciable fixed assets are handed over to specialized units.

Adjustment of VAT deduction right

The missing goods from the inventory management are not recognized as the goods delivery

If the missing assets are imputable, the imputed amounts do not represent the counter value of the operations within the VAT scope, regardless these assets fall or not under the mandatory tax adjustment according to art 304 Fiscal Code. The imputation is done at the replacement value.

Penalties for non-compliance

Non-compliance with the regulations issued by the Ministry of Public Finance, regarding the performance of the inventory, the approval of the accounting procedures provided by the legislation, represents the contravention, and is sanctioned with a fine from Ron 400 to Ron 5,000.

The sanctions are applied if:

• the stock count is not carried out
• the inventory procedures are missing
• the inventory decision is not drawn up
• the inventory manager does not submit his inventory statement
• the documents related to the inventory process are not drawn up
• the company refuses to confirm the receivables and payables.

Sources & Bibliography:

Order of the Ministry of Public Finance 2861/2009 for the approval of the Norms regarding the organization and performance of the inventory of assets, liabilities and equity items

Accounting Law 82/1991