Events after the reporting period are favourable or unfavourable events occurring between the reporting date and the date the financial statements are authorised for issue. IAS 10 divides them into adjusting and non-adjusting events.
The key question is whether the event provides evidence about a condition that already existed at the reporting date or instead reflects a new condition arising afterwards.
The Authorisation Date
The review period ends when the financial statements are authorised for issue. The authorisation process depends on the entity’s governance and legal environment. Shareholder approval after issue does not necessarily determine the authorisation date.
Adjusting Events
An adjusting event provides evidence of conditions existing at the reporting date. Recognised amounts are adjusted, and related disclosures are updated.
Examples
- Settlement of a court case confirming a present obligation at year-end.
- Customer bankruptcy confirming a receivable was impaired at year-end.
- Sale of inventory after year-end providing evidence about year-end NRV.
- Discovery of fraud or errors affecting the financial statements.
- Receipt of information determining the cost of assets purchased before year-end.
Non-Adjusting Events
A non-adjusting event indicates a condition arising after the reporting date. Recognised amounts are not adjusted. If the event is material, the entity discloses its nature and an estimate of the financial effect, or states that the effect cannot be estimated.
Examples
- A major business combination completed after year-end.
- Destruction of a plant by a fire occurring after year-end.
- A major share issue, debt issue or restructuring announced after year-end.
- Significant market-value changes caused by post-year-end events.
- New tax rates enacted after year-end affecting future periods.
Decision Table
| Event | Condition at reporting date? | Treatment |
|---|---|---|
| Customer bankrupt after year-end because of long-standing financial difficulty | Yes | Adjust receivable impairment. |
| Customer bankrupt after year-end due to a new disaster | No | Non-adjusting; disclose if material. |
| Inventory sold below cost because it was obsolete at year-end | Yes | Adjust NRV. |
| Inventory damaged by a new fire after year-end | No | Non-adjusting; disclose if material. |
| Fraud discovered after year-end that existed before year-end | Yes | Correct the statements. |
| New share issue after year-end | No | Non-adjusting; disclose if material. |
Dividends Declared after the Reporting Period
Dividends declared after the reporting date are not recognised as a liability at the reporting date because no present obligation existed then. They are disclosed when required.
Going Concern
If events after the reporting period indicate that the going-concern basis is no longer appropriate, the issue is not merely a non-adjusting disclosure. The financial statements are not prepared on a going-concern basis. Management must consider all available information about the future for the period required by the applicable framework.
Worked Examples
Receivable impairment
A customer owed $80,000 at year-end. In January the customer enters liquidation after months of severe financial difficulty. The liquidation confirms year-end impairment, so the receivable and expected credit loss are adjusted.
Post-year-end fire
A warehouse in good condition at year-end is destroyed by fire in February. The condition arose after year-end, so year-end asset values are not adjusted. The nature and estimated financial effect are disclosed if material.
Court settlement
A lawsuit relating to pre-year-end events is settled after year-end. The settlement may provide evidence about the amount of the year-end provision and require adjustment.
Material Non-Adjusting Events
Materiality is judged by whether omission or obscuring could influence users. Disclosures should be specific enough to explain the event and its financial effect. Boilerplate wording is not a substitute for an entity-specific estimate or an explanation of why estimation is impracticable.
Events Affecting Estimates and Disclosures
An event may confirm an existing estimate, reveal an error, require a new disclosure or alter the going-concern assessment. The accounting team should therefore coordinate with legal, credit, treasury, insurance, operations and governance functions before authorisation.
Subsequent Events Checklist
- Review board minutes and major contracts.
- Obtain updates from legal advisers.
- Review customer insolvencies and collections.
- Review post-year-end inventory sales and write-offs.
- Inspect major asset purchases, disposals and damage.
- Assess new borrowing, covenant breaches and refinancing.
- Review tax, regulatory and market developments.
- Update going-concern forecasts and sensitivities.
Common Mistakes
- Classifying events solely by the date they occurred.
- Ignoring evidence about conditions existing at year-end.
- Recognising post-year-end dividends as year-end liabilities.
- Adjusting year-end assets for a genuinely new post-year-end disaster.
- Failing to disclose a material non-adjusting event.
- Using the shareholder approval date instead of the actual authorisation date.
- Treating a failure of going concern as an ordinary non-adjusting event.
Relationship with Other Standards
IAS 10 works with standards such as IFRS 9 for receivable impairment, IAS 2 for inventory NRV, IAS 37 for provisions, IAS 1 or IFRS 18 for presentation and disclosure, and IAS 8 for errors and policy issues. The subsequent event provides evidence; the related standard determines measurement.
Frequently Asked Questions
What is the difference between adjusting and non-adjusting events?
Adjusting events provide evidence of conditions existing at the reporting date; non-adjusting events reflect new conditions arising afterwards.
Are post-year-end dividends a liability at year-end?
No. Dividends declared after the reporting date are not recognised as a year-end liability.
Is a customer bankruptcy always an adjusting event?
No. It is adjusting when it confirms pre-existing financial difficulty; a new post-year-end cause can make it non-adjusting.
What is disclosed for a material non-adjusting event?
The nature of the event and an estimate of the financial effect, or a statement that the effect cannot be estimated.
What if the entity is no longer a going concern?
The statements are not prepared on a going-concern basis; this is more fundamental than an ordinary non-adjusting event.
Related Guides
- Balance Sheet Explained
- Extraordinary Items and Prior Period Errors
- Inventory Valuation
- Financial Accounting Guide
Conclusion
The most useful analysis combines correct calculations with context. A ratio, valuation, reconciliation or accounting treatment should be applied consistently, supported by evidence and interpreted with the entity’s facts, reporting framework and materiality in mind.
Authoritative references: IFRS Foundation — IAS 10 Events after the Reporting Period, IFRS Foundation — IAS 10 Supporting Material.
When an event brings change to account balances, it is classified as transaction and recorded in the books. It is the biggest difference between transaction and event in accounting.
ReplyDelete