Define: CONVENTION STATEMENT

What CONVENTION STATEMENT Means in a Contract

A Convention Statement is a contractual mechanism requiring a party, most often a corporate entity, financial institution, or regulated organization, to prepare and submit financial statements at set intervals, whether annually or quarterly, in a form that follows recognized accounting conventions and satisfies the requirements of the relevant supervisory or regulatory authority. The term signals that the statements are not merely informal summaries but formal disclosures prepared to a defined standard that outside parties, lenders, regulators, or counterparties can rely upon.

In practice, the clause functions as a reporting obligation embedded within a broader agreement, such as a loan facility, joint venture, or supply arrangement. It obliges the reporting party to compile balance sheets, income statements, and sometimes cash flow statements that conform to the accounting framework applicable to its jurisdiction or industry, and to deliver these to the counterparty within a specified timeframe after each reporting period closes.

The purpose is to give the receiving party continuing visibility into the financial health of the reporting party throughout the life of the contract, rather than relying solely on financial information captured at signing. This ongoing transparency supports risk monitoring, covenant compliance, and early detection of financial distress.

How CONVENTION STATEMENT Is Defined or Measured

The definition of a Convention Statement typically hinges on three elements: frequency, content, and the accounting standard applied. Frequency is usually fixed as annual, quarterly, or sometimes monthly, depending on the risk profile of the relationship. Content generally includes core financial statements such as a balance sheet, profit and loss account, and notes to the accounts, though some agreements expand this to include management commentary or key performance indicators.

The accounting convention itself refers to the recognized set of principles, whether generally accepted accounting principles applicable in the relevant jurisdiction or an international framework, that governs how figures are recorded and presented. Contracts often specify that statements must be prepared consistently with the conventions used in prior periods, so that financial performance can be compared meaningfully across time.

• Frequency of submission (annual, quarterly, or another agreed interval)
• Required components (balance sheet, income statement, notes, or supporting schedules)
• The accounting framework or authority's requirements to be followed
• Delivery deadline after the close of each reporting period
• Whether independent verification or audit is required

Some agreements also require that the statements be certified as true and accurate by an officer of the reporting party, or that they be accompanied by a related