Executory contract

With the vague legal term executory, a contractual relationship is referred to prevailing opinion, which is directed to a mutual exchange of services, but both parties not yet begun to fulfill its contractual obligation or one or both parties have not yet fulfilled their essential contractual obligations.

The term is used in the context of the accounting law, because to be assessed at the balance sheet date to determine whether the - beyond the balance sheet date - limbo of a business is accounting charge.

General

The classification as a pending transaction particularly interested in commercial law ( accounting), civil law, tax law and in the treatment of contract disputes (eg in § 249 paragraph 1 sentence 1 HGB, § 49 section 1 sentence 2 BGB, § 5 para 4 sentence 1 Income Tax Act). Is a prerequisite for a pending transaction that a contract has been concluded, the mutual benefits has for content, so mainly from bilateral contracts within the meaning of § § 320 ff BGB may result pending transactions. Also a binding contractual offer, the acceptance is safe, can be a trigger for a pending transaction. The floating business starts with the conclusion of a contract and ends when both parties have fulfilled their contractual typical main duties. Stay only minor collateral duties unfulfilled, there is no longer a pending transaction. The IDW sees as the end of the pending transaction to the settlement date of the payment in kind, because this inevitably leads both parties to a settlement.

Accounting Treatment

According to the prevailing opinion is still pending transactions for a reporting ban by the so-called non- accounting principle pending transactions. This principle is not codified in law but is derived from the generally accepted accounting principles ( accounting ).

A balance sheet recognition of events in connection with pending transactions should be taken at about the advantages and Nachleistungen. These are advance payments (see § 266 para 2, 3 HGB), provisions for onerous contracts (see § 249 paragraph 1 sentence 1 HGB) and the approach of the production costs (see § 255 paragraph 2 sentence 1 HGB). As part of the evaluation units in accordance with § 254 HGB claims and liabilities arising from executory contracts may be included in the balance sheet when they are used for compensation opposing value movements of another business.

Balance sheet expel are pending transaction thus on the one hand " outstanding obligations " as obligations as the contractor earned (through which yielded intermediate consumption) and thus represent residual return at the balance sheet date. On the other hand, to anticipate potential losses in the pending transaction and as such pursuant to § 249 paragraph 1 sentence 1 HGB expel. A loss under this provision threatens, if and to the extent the value of the services to be provided by the merchant in the pending transaction the value of the performance to be claimed by him in return outweighs ( obligation surplus ). For this purpose, the mere possibility of a loss entry is not made ​​, consisting in each pending transaction. Threatening does mean that signs are given which make the occurrence of a loss appear seriously before standing in a particular case. A one-sided, over-cautious assessment on the one hand defeats the purpose of a meaningful accounting and therefore not the aim of a true and fair view of the net assets, financial position and results ( "true and fair view" ). On the other hand, it contradicts the principle of § 253 paragraph 1 sentence 2 HGB, which provisions - including those for contingent losses - may be recognized only to the extent of the necessary amount. It must therefore - according to general principles of provisioning - more reasons for the occurrence of a loss than the contrary.

Commercial and tax balance sheets

However, this applies only to the trade balance. The authoritativeness was limited by the introduction of § 5 para 4a Income Tax Act (Act on the continuation of the corporate tax reform ) on 29 October 1997. Thereafter, may in the tax provisions for potential losses can not be formed unless they result from the commercial law hedge against financial risks (refer to § 5 paragraph 1a sentence 2 of the Income Tax Act ). This is the commercial law Passivierungsgebot against a tax law Passivierungsverbot. This controversial tax law change, the discussion about the accounting treatment of pending transactions revived.

Different views on the duration of the legal limbo

In the above disambiguation is the view of the Federal. It is generally accepted that it is in the pending transactions to contracts according to § 320 BGB, where a mutual obligation, a so-called Synallagma agreed. The adjective floating indicates that a particular business indeed initiated but is not yet fully completed. Between the beginning and end of a transaction, a certain, unspecified certain period of time must be such that it can be classified as a pending transaction. Shops, are fulfilled immediately, such as cash transactions ending after any extended period of time or do not count toward the pending transactions.

Different views exist concerning the duration of limbo, so the beginning and end of the pending business. From a civil perspective, the duration of limbo from the entry into force of the Treaty can be seen until all obligations of the contract. Deviating from this may be seen in an economic way of looking at the beginning, even before the entry into force of the Treaty and thus prior to the signing of the contract, namely, when a binding offer ( § 145 BGB), the adoption can be expected with some certainty exists. The latter is considered by much of the literature and the case law. The end of the firm commitment falls from an economic point of view with the civil law point of view apart. Not the fulfillment of all obligations under the contract by both parties is deemed necessary, but already the fulfillment of the main performance may still be open, insignificant fringe benefits of the property or service obligor is considered sufficient for the completion of the pending transaction. This (economic ) point of view is consistent with the recognized time of realization of income, so that the realization principle defines the end of the floating business. Other interpretations assume that the performance of both parties still had to be open, so that the floating store is not yet completed, but considered this view is not generally recognized in the neutral treatment of payments (see also: Accounting treatment ).

System

Subject of pending transactions can in particular deliveries of fixed or working capital ( purchase contracts, work contracts, work supply contracts) or benefits in the form of forms of use ( rental agreements, lease agreements, lease agreements, credit agreements ), commercial transactions in banking ( see trading book) or other act or omission ( service contracts, his contracts ). Basically, the Parties may in the contract of the equivalence of the contractual obligations and also assume that the provision of a service of providing the relevant counter- conditioned and both basically worth the same face ( Synallagma ). This must be enabled accounting assets not to the procurement or sale, pending transaction can also be a guarantee facility. The contents of the pending transaction can be extremely diverse. So it may be the supply of goods, services, or other activities the omission of activities.

Pending transactions can be roughly divided into two criteria. On the one hand can be distinguished by the frequency of repetition between single floating obligations and continuing obligations and, secondly, through the perspective of the reporting entities between pending sales transactions and pending procurement transactions.

Pending sales transactions

For the property or service, the debtor pending business is as a sales business dar. It may be about a sale, ie, a mapping change, an asset (such as a machine ) or the provision of a service (eg, the one machine ) repair act. For settling the question of when he is allowed to view collect the income from the business is ( cf. realization principle ). In addition, he has possibly expel provisions for anticipated losses from pending business.

Pending purchase transactions

The same business that presents itself for a contractor as a sales business is a sourcing business for the other party. While face the procured any questions regarding revenue recognition, provisions for contingent losses occur during the limbo of the business as much consideration as to the deposing page.

Pending long-term obligations

A floating long-term debt ratio is the same as a single obligation on the side of a contractual partner a sales transaction and on the other side a procurement business. Pending long-term obligations, in contrast to individual obligations some peculiarities in its civil aspect on: Services are provided over an extended period of time and is not limited to the unique power exchange. The long-term debt ratio can be in the compliance period met by periodic partial deliveries, the scope not need to be certain the contract. This can complicate the identification of scope and value of the power compared to individual obligations. The performance of both contractual partner performance or pro-rata, bringing the limbo refers in ongoing obligations only on the still open, lying in the future of the business. Already developed partial deliveries are therefore not (any longer ) in a floating state.

Examples of pending continuous obligations, rental, license, training and working conditions, as well as successive deliveries (eg the supply of gas and electricity). Also, the granting of loans and borrowings are to be among the floating Dauerschuldverhätnissen: Object of the power exchange is not the devotion and subsequent repayment of a sum of money, but the transfer of credit value date for the use and payment of the price for the transfer of use in the form of credit interest rate. This business is still as long as the agreed usage periods are still in the future in limbo. Only insofar potential losses while (positive or negative ) have been reflected achievements for the period up to the balance sheet date already in the income statement.

Pending transactions with credit institutions

For credit institutions, the entire trade area consists (securities, foreign exchange, derivatives, varieties and precious metals) on contracts which have pending transactions can result. Meets one part in such trade his obligations, he can not be sure if at the same time also the other part of its commitments. This applies to commercial transactions with Bank customers and commercial transactions between banks ( interbank market ). Even the bankruptcy of the Herstatt Bank in June 1974 had induced banks to image such risks of insolvency -related non-performance of contractual obligations, which in the trading areas. It is generally spoken in the banking industry by the counterparty risk or " Herstatt risk ". This is to reduce the risk of default by a professional market party ( counterparty and the term is used in this context as a counter-concept to customer). This addition to traditional credit risk - for example, money market deposits - in particular, the failure risks arising from derivative positions or in the settlement of financial transactions.

Under settlement risk, the law understands ( § 4 para 2, sentence 4 of the Solvency Regulation ), both parties did not meet after a performance timing transactions on which changes in the value of traded financial instruments may result. As a so -called intermediate risk is described in § 14 Section 1 of the Solvency Regulation settlement risk, wherein the counter business of the other contracting party responsible for payment has not yet been fulfilled, but the institute itself has already been done according to the contract. The difference between resolution and intermediate risk, therefore, is whether both parties have not (yet) done, although they were obliged to perform ( settlement risk) or whether only one partner of his obligation is not fulfilled ( intermediate risk). In addition, the delivery risk is limited by law to the trading book, while extending the settlement risk on the banking book of an institution. To have these counterparty risks not reflect the balance sheet, banks try as far as possible, the affected businesses time to handle so that both parties do not have the balance sheet date met their performance.

Literature

Below is a selection of the literature on pending transactions.

Monographs:

• Heinrich Bauer: Pending transactions in tax law. Dissertation Erlangen -Nuremberg, 1981.
• Hartmut Bieg: Pending transactions in commercial and tax balance sheet. European University Studies: Series 5, Economics and Business, Volume 151
• Hans Karl Vellguth: principles of proper accounting for executory contracts. Publication of Schmalenbach Association Volume II, Leipzig, GA Gloeckner, 1938.

Essays:

• Mathias Babel: use rights, accounts receivable, executory contracts - a "magic triangle" of accounting. In: Werheim / Heurung (ed.): tax burden - tax effect - tax planning, Festschrift for the 65th birthday of Winfried Mellwig. Wiesbaden, DUV, 2007, pp. 1-35.
• Karlheinz Küting / Harald Kessler: Principles of irregular loss provisioning - exemplified by the cost of training judgments of the BFH on January 25, 1984 German Tax Law 1993, pp. 1045-1053. .
• Lothar Woerner: basic issues in accounting for pending transactions. In: Financial -Rundschau 1984, p 489-496.