Acca f3 Financial Accounting (int) Study Text

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.

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