Fulfilment terms of the new obligation of statutory audit for small companies

On February 14th 2019 the Legislative Decree setting forth the new “Business Crisis and Insolvency Code” was published in the Official Gazette of the Italian Republic. This new code introduces some relevant innovations, like for example the appointment of a statutory auditor in small Limited-Liability Companies. As a result, companies started to appoint their new statutory auditors and to change their articles of association and company documents, as the last term to carry out these operations is December 16th 2019.

The two main purposes of the new Code are:

  • An early analysis of a company’s financial crisis;
  • The protection of entrepreneurial skills of people whose business is going bankrupt, or in case of “compulsory winding-up”, as the Legislative Decree No. 14 on January 12th 2019 established.

For this reason, the legislator provided specific tools in order to create a warning system whose main purpose is an early identification of a company’s financial crisis with a turnaround approach. In this way, the legislator tries to guarantee that the company pays the highest number of its debts back and to ensure business continuity in order to reduce the duration and costs of insolvency proceedings.


The main warning tools refer to the obligation to establish a structure to promptly detect a crisis and the loss of going concern and the duty to promptly act to adopt and implement the tools provided by the legal system to overcome a crisis and restore going concern. Upon detection of the crisis indicators, the company control bodies and the statutory auditors shall be responsible for reporting on it to the OCRI (a new body established in each CCIAA – chamber of commerce). In this perspective, companies’ supervisory bodies – being those in the form of external auditor, auditing society, sole statutory auditor or board of statutory auditors find new importance. Therefore, pursuant to the new article 2477 of Italian Civil Code (entered into force on March 16th2019), the Limited-Liability Companies obliged to appoint the supervisory body will be those:

  • required to draw up the consolidated financial statements;
  • controlling a company obliged to have its accounts audited;
  • exceeding for two consecutive financial years at least one of the following limits:


  • total assets resulting from the balance sheet – € 2.000.000,00;
  • revenue from the sale of goods and services – € 2.000.000,00;
  • average number of employees employed during the financial year amounting to 10 units.


The new rule extends the time span relevant for the assessment of the conditions that determine the termination of the duty to appoint the supervisory body or the auditor. Specifically, the supervisory body’s or auditor’s appointment duty will cease, if the above-mentioned “size limits” are not exceeded for three consecutive financial years (and no longer for two). In addition to control bodies, other subjects that have similar obligations are:

  • Agenzia delle Entrate (Revenue Agency), INPS (Italian Social Security Institute)and the tax collection agent that shall inform the debtor by means of certified mail when its debt exposure exceeds the thresholds laid down in article 15, paragraph 2of the new Business Crisis Code;
  • Banks and other financial intermediaries that shall inform control bodies about any variation, revision or revocation of lines of credit.


How will auditors identify financial crisis signals? They will have to consider the financial crisis indicators that the legislator established pursuant to article 13 of the new Business Crisis Code. It deals with income, assets and financial indicators attesting the sustainability of debts for at least the following six months and business continuity perspectives as regards the current financial year. The sustainability of debt and debt service charges compared to business’s cash generation will be monitored. Moreover, equity suitability compared to thirds will be assessed, as well as any repetitive and significantly delayed payment.

The CNDCEC (National Council of Chartered Accountants and Public Accountants) will create and update indexes to monitor the business financial crisis every three years. The established indexes will be approved by means of a decree by MISE (Italian Ministry of Economic Development). Moreover, according to the new Business Crisis Code, control bodies are obliged to check if the administration body constantly assesses the suitability of the company organisation. Significant financial crisis indicators shall be immediately communicated to administrators with full and definite discharge from joint and several liability.


Business Crisis and Insolvency Code also increases administrators’ responsibility. Indeed, a specific paragraph was added to article 2476 of the Italian Civil Code by establishing administrators’ responsibility as regards the company’s creditors due to non-compliance of obligations concerning the preservation of the integrity of the company’s assets.

Moreover, the new paragraph of article 2486 sets forth the criteria to determine the compensable damages. It is calculated as the difference between the shareholders’ equity on the date the director’s position was terminated or on the date the composition procedure started and the shareholders’ equity calculated on the date the cause for dissolution arises as per article 2484.

As a result, control bodies have more tasks and liabilities, as they have to control consolidated audit principles (ISA) and, at the same time, they will also have to monitor the company by means of the new financial crisis indicators and report any eventual abnormal situation to company’s administrators and to OCRI.

Auditors and sole statutory auditors will have to perform new activities resulting from the application of the new Business Crisis Code, in addition to their usual (and not very flexible) auditing activities.