Part F Preparing
basic financial statements
22: Events after the reporting period
383
An
example of additional evidence which becomes available after the reporting date is where a customer
goes bankrupt, thus confirming that the trade account receivable balance at the year end
is uncollectable.
In relation to going concern, the standard states that, where operating results and the financial position
have deteriorated after the reporting date, it may be necessary to reconsider whether the going concern
assumption is appropriate in the preparation of the financial statements.
1.4 Events not requiring adjustment
Events which do not affect the situation at the reporting date should not be adjusted for, but should be
disclosed in the financial statements.
The standard then looks at events which do
not require adjustment.
An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events
after the reporting period.
(IAS 10)
The
example given by the standard of such an event is where the value of an investment falls between
the reporting date and the date the financial statements are authorised for issue. The fall in value
represents circumstances during the current period, not conditions existing at the previous reporting date,
so it is not appropriate to adjust the value of the investment in the financial statements. Disclosure is an
aid to users, however, indicating 'unusual changes' in the state of assets and liabilities after the reporting
date.
The rule for
disclosure of events occurring after the reporting period which relate to conditions that arose
after that date, is that disclosure should be made if non-disclosure would hinder the user's ability to made
proper evaluations and decision based on the financial statements. An example might be the acquisition
of another business.
There was an article on events after the reporting period in Student Accountant dated 15 March 2007. We
recommend that you read this article.
1.5 Dividends
Dividends proposed or declared (but not paid) are no longer recognised as a liability and do not appear in
the accounts.
1.6 Disclosures
The following
disclosure requirements are given for events which occur after the reporting period which
do not require adjustment. If disclosure of events occurring after the reporting period is required by this
standard, the following information should be provided:
(a)
The nature of the event
(b)
An estimate
of the financial effect, or a statement that such an estimate cannot be made
Expect to be asked whether an item is adjusting or non-adjusting. You may well be asked to adjust for an
adjusting item.
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384
22: Events after the reporting period Part F Preparing basic financial statements
Question
Events after the reporting period
State whether the following events occurring after the reporting period require an adjustment to the assets
and liabilities of the financial statements.
(a)
Purchase of an investment
(b)
A change in the rate of tax, applicable
to the previous year
(c)
An increase in pension benefits
(d) Losses
due
to
fire
(e)
An irrecoverable debt suddenly being paid
(f)
The receipt of proceeds of sales or other evidence concerning the net realisable value of inventory
(g)
A sudden decline in the value of property held as a long-term asset
Answer
(b), (e) and (f) require adjustment.
Of the other items, (a) would not need to be disclosed at all. Item (c) could need a disclosure if the cost to
the company is likely to be material. Item (d) again would be disclosed if material, as would (g) if material.
Assuming that item (d) is material, it would be disclosed by way of the following note to the accounts.
(The company year end is 31 December 20X8.)
Events after the reporting period
On 22 January 20X9, there was a fire at the company's warehouse. As a result, inventories costing a total
of $250,000 were destroyed. These inventories are included in assets at the reporting date.
Chapter Roundup
Events after the reporting period which provide
additional evidence of conditions existing at the
reporting date, will cause
adjustments to be made to the assets and liabilities in the financial statements.
An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after
the reporting period.
Where events indicate that the
going concern concept is no longer appropriate, then the accounts may
have to be restated on a break-up basis.
Events which
do not affect the situation at the reporting date should
not be adjusted for, but should be
disclosed in the financial statements.
An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events
after the
reporting period.