Events After Reporting Period (IAS 10)
Events after Reporting Period
Events that occurs after the end of reporting period but before the authorization of financial statements are called events after reporting period. These events may or may not in in the favor of an entity.
Type of Events
There are two types of events:
1) Adjusting events after reporting period:
There are circumstances that give evidence of condition that existed at the reporting period.
2) Non-adjusting events after reporting period:
There are circumstances that give indication of conditions that arose after reporting period.
Reporting periods are quarter end, half year end and financial year end dates.
Financial Statement Authorization Date
An entity issues the financial statements and submit to the shareholders for approval. So, the date of authorization of financial statements is the date on which an entity issues them and not the date of approval of shareholders.
Recognition and Measurement
ADJUSTING EVENTS AFTER REPORTING PERIOD:
An entity is required to change / revise the amounts recorded in different heads of financial statements to ensure adjusting events occurred after the reporting period are incorporated in these heads.
Examples of adjusting events after balance sheet
Examples of adjusting events after balance sheet date that may require an entity to adjust the amounts recognized in the financial statements;
- After the reporting period, there is settlement of the case, which has present obligation for the entity, at the end of the reporting period.
- The receipt of information after reporting period that an asset has impaired or already recorded loss needs to be adjusted. For instance, bankruptcy of a customer, amount of net realizable value of inventory after sale.
- Discovery of fraud or errors.
- The determination of bonus or profit sharing to employees if an entity has legal obligation to pay.
- The determination of cost of assets or proceeds of assets. Both purchase and sale held before reporting period.
Bankruptcy of a customer
An entity may have the information about liquidity, business or credit worthiness of a customer at the balance sheet date but due to non-confirmation of a default an entity may not book the impairment loss or provision for bad debts. Or if an entity may have recorded less amount of impairment loss. Now, after getting the information on bankruptcy, an entity needs to adjust the balance and record the impairment loss.
Net realizable value (NRV) of inventory
Inventories are measured at lower of cost or NRV as per IAS-2. An entity may have recorded the inventory on the basis of cost which is lower than NRV at the reporting period. There may be an evidence of technological obsolescence or weather change at the reporting date that may affect the sale value of the inventory. If there is certain change in climate or technology obsolescence after reporting period NRV of the inventory may have become lower than the cost.
Therefore, an entity needs to adjust the closing inventory value by reducing it and recording the expense in cost of goods sold.
Non-Adjusting events after reporting period:
An entity shall not recognized the adjustments for non-adjusting events.
Examples of Non-Adjusting Events
There is decline in the fair value of investment between financial statement reporting date and financial statement authorization for issue date.
The decline relates to the circumstances which arises subsequently, therefore, an entity does not adjust the amounts recognized in the financial statements for the investments.
- A major business combination
- Announcing a plan to discontinue operation
- Major purchases / disposals of assets, classification of assets under disposal group as per IFRS 5.
- Destruction of major plant due to fire.
- Major restructuring.
- Major ordinary share transactions.
- Significant change in foreign exchange or asset prices.
- Changes in tax rates
- Entering into significant commitments.
- Commencing major litigation.
Non-Adjusting events after reporting period – Disclosure requirement
If an entity receive information after the reporting period that relates to events that existed at the reporting date, it shall update the relevant disclosures.
An entity shall give disclosure for following non-adjusting events if non-adjusting events are material and could influence the decisions of the users of financial statement.
An entity shall disclose;
- The nature of the event and
- An estimate of financial impact or where estimate cannot be made the statement of this fact.
If dividends are declared after reporting period but before financial statements are authorized for issue the impact shall be taken in subsequent financials and not in the current financials being in discussion.
Financial statements are prepared on going concern basis, but if the management intention (or on no choice basis) is to liquidate the entity or cease trading after the reporting period then an entity shall not prepared the financial statements on going concern.
IAS 1 require disclosures if:
- Financial statements are not prepared on going concern basis.
- Material uncertainties about entity ability to continue as going concern exists after reporting period.
Date of authorization
An entity shall mention the date when the financial statements were authorized and who did the authorization.
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