Chapter 25 IAS 10 Events After The Reporting Period

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BBFA 2014 FINANCIAL REPORTING

IAS 10 / MFRS 110 Events after the reporting period


1. Introduction

Financial statements reflect historical transactions and events. Therefore they usually report
transactions and events that have occurred before the reporting date.

At times, there are important events that happen after the reporting period but before the
statements are authorised for issue (to outside the organization). These events cannot be
ignored in the financial statements – financial statements have to give a faithful picture of
the financial affairs of a company.

IAS 10 / MFRS 110 gives guidelines about when to:-


i. adjust the amounts in the financial statements
ii. only disclose the fact in the notes to the financial statements
iii. neither disclose in the notes to the Financial statements nor adjust the amounts.

If a company’s year-end is 31 December 2019, then it will be sometime before the financial
statements are finalized and signed by the directors.
• It will take time to produce the financial statements, and
• Then more time while they are being checked by the auditors.
• It may not be until say, 20 March 2020 before the financial statements become final
and are signed.

Although the financial statements should show the position as at 31 December 2019,
changes can be made at any time up to 20 March 2020 when the financial statements are
finalized. If errors are discovered after 20 March 2020, then it is too late to change anything.

Events after the reporting period refer to events that occur between the date of the SOFP
and the date on which the financial statements become final.

2. Definition

2.1 Event occurring after the reporting period is an event, both favourable or
unfavourable, that occurs between the end of the reporting period & the date on which
the financial statements are authorized for issue.

2.2 Adjusting event is an event after the reporting period that provides further evidence
of conditions that existed at the end of the reporting period.

The following are examples of adjusting events provided by IAS 10 that requires an
entity to alter the amounts recognised in its financial statements or to recognise items
that were not previously recognised after the reporting period:

a) Evidence of a permanent diminution in property value prior to year-end.

b) Sale of inventory after the reporting period for less than its carrying value at the
year end provides evidence about the net realizable value of the inventory as at end
of the reporting date.

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BBFA 2014 FINANCIAL REPORTING

c) Insolvency of a customer with a balance owing at the year end normally indicates
that the customer already had financial difficulties at the end of the reporting period

d) Amount received or paid in respect of legal or insurance claims which were in


negotiation at the year end.

e) Determination after the year end of the sale or purchase price of assets sold or
purchased before the year end.

f) Evidence of a permanent diminution in the value of a long-term investment prior to


the year end.

g) Discovery of error or fraud which shows that the financial statements were
incorrect.

h) The settlement of a court case after the reporting period that confirms that the entity
had a present obligation at the end of the reporting period. Any previously
recognised provision related to this court case has to be adjusted in accordance with
IAS 37 Provisions, Contingent Liabilities and Contingent Assets or if there was no
previous provision, the entity recognises a new provision.

2.3 Non-adjusting event is an event that is indicative of conditions that arose after the
reporting period.

Examples:

a) A major biz combination/disposing of a major subsidiary after the reporting date.

b) Announcing a plan to discontinue an operation, disposing of assets/settling liabilities


to a discontinuing operation or entering into binding agreements to sell such
assets/settle such liabilities.

c) Major purchases & disposals of assets/expropriation of major assets by government.

d) The destruction of a major production plant by a fire after the reporting period

e) Announcing, or commencing the implementation of, a major restructuring

f) Major/potential ordinary shares transaction after the reporting period

g) Abnormally large changes after the reporting date in asset price/foreign exchange
rate

h) Changes in tax rates/laws enacted/announced after the reporting period that have a
significant effect in current & deferred tax assets & liabilities.

i) Entering into significant commitments/contingent liabilities (eg: issuing significant


guarantee)

j) Commencing major litigation arising solely out of events that occurred after the
reporting period.

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BBFA 2014 FINANCIAL REPORTING

3. Accounting treatment

3.1 Adjusting events - An entity is required to adjust the amounts recognized in its
financial statements to reflect the adjusting events after the reporting period.

Example 1

Entity A was sued by a customer before the year end of 31 January 2019. A
contingent liability was disclosed at year end. After the year-end and before the
financial statements was authorized for issue, the court ruled that Entity A is liable
and have to pay RM10,000.

The settlement after the year end confirms that Entity A had a present obligation
at end of the reporting period. Therefore, Entity A will recognize a provision for
legal damages of RM10,000 in its financial statements at year end instead of
disclosing the contingent liability.

[Note: If as at year-end there was a provision, then the provision amount will have
to be adjusted to the settlement amount]

Example 2

Bankruptcy of a customer after the reporting period and before the financial
statements was authorized for issue usually confirms that the customer has financial
difficulty at end of the reporting period. Therefore, the amount owing by the
customer has to be adjusted to the amount that can be recovered from that customer.

3.2 Non-adjusting events – No adjustment is to be made to the amounts recognized in


the financial statements in respect of non-adjusting events after the reporting period.

Example 3

The value of an investment falls between the end of the reporting period and the date
the financial statements are authorized for issue. The fall in value does not provide
evidence of the condition existing at the end of the reporting period but reflect
the circumstances that have arisen subsequently. So the entity does not adjust the
value of the investment in the financial statements but a disclosure will be required
of the nature of the event and estimate of the financial effect.

Dividends

Dividend declared after the reporting period is a non-adjusting event since there is no
obligation/liability to pay the dividends at the end of the reporting period. However, it
should be disclosed in the notes to the financial statements.

Going concern status

In cases whereby the management decided to liquidate the entity/cease trading, the entity
may need to consider whether the going concern assumption is still appropriate in the
preparation of its financial statements. Where events (example, the operating results and
financial position deteriorates after the end of the reporting period) indicate that the going

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BBFA 2014 FINANCIAL REPORTING

concern concept is no longer appropriate, then the accounts may have to be restated on a
break-up basis.

4. Disclosure

If non-adjusting events after the reporting period are material, non-disclosure could
influence the economic decisions of users taken on the basis of the financial statements.

Accordingly, an entity shall disclose the following for each material category on non-
adjusting event after the reporting period:

(a) the nature of the events; and


(b) an estimate of its financial effect, or a statement that such an estimate cannot be
made.

Disclosure indicating “unusual changes” in the state of assets and liabilities after the
reporting period will aid users in making decisions. Disclosure should be made if non-
disclosure would hinder the user’s ability to make proper evaluations and decisions based
on the financial statements.

Sources:
(1) ACCA Approved Workbook Financial Reporting, BPP Learning media 2021
(2) IAS 10 Events after reporting period from IFRS website

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