FUNDAMENTALS OF IFRS 6.

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

FUNDAMENTALS OF IFRS
CHAPTER 6
Events After the Reporting
Period (IAS 10)

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6.2
6.2 CHAPTER SIX

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

Events After the Reporting Period (IAS 10)

Introduction
Events after the reporting period are those events, favourable (the events that will lead to
the inflow of economic benefits, which could be in the form of more profits, revenue or assets
for the entity) and unfavourable (the event that will lead to a loss), that occur between the
end of the reporting period and the date when the financial statements are approved by the
Board of Directors in case of a company, and, by the corresponding approving authority in case
of any other entity for issue.
Normally, there is a time gap between the end of a reporting period and the date when the
financial statements are published in order to enable the users to interpret the same. During this
time gap, an entity continues with its activities. It may so happen that a significant event occurs
which needs to be a part of the complete set of financial statements awaiting to be authorised by
the board of directors for issue. The significant event might be in the form of an adjustment or a
disclosure in the notes to financial statements.
Example 1
For copyright infringement, ABC Ltd was awarded damages by the court, after it sued XYZ Ltd. The event ensures the inflow of
economic benefits to the entity in the form of compensation for damages that it had suffered. Therefore, the event is a favourable one
for ABC Ltd.

Example 2
ABC Ltd had sold its finished goods to XYZ Ltd for an amount of 10, which XYZ Ltd used as a raw material. After the reporting period,
it is found that ABC Ltd would not be able to get the entire amount owing, as XYZ Ltd becomes bankrupt. This event is an unfavourable
one since it requires ABC Ltd to make a full provision of the amount owing from XYZ Ltd.

Events occurring after the reporting period may provide additional information about events
that occurred before and up to the end of the reporting period. These events might not affect the
figures reported in the financial statements but may warrant disclosures. Therefore, when financial
statements are prepared, one needs to consider events that occur after the reporting period
until a certain cut-off date, which is the date of board authorisation for the issue of the financial
statements.
The cut-off date is the end of the post reporting period. Establishing this date is necessary to
comply with the standard. The process involved in authorising the financial statements for issue
will vary depending upon the following –
 Management structure;
 Statutory requirements; and
 Procedures followed in preparing and finanlising the financial statements.
When an entity is obliged to submit its financial statements to its shareholders for approval
after they are issued, the financial statements are considered authorised for release on the
date of issuance and not the date when shareholders will give their approval.
Example 3
The financial statements of an entity were prepared for the reporting period ended 31 December 2011 on 15 March 2012. The draft
financial statements were considered at the meeting of the board of directors held on 25 March 2012, on which date the board approved
them and authorised for issuance. The Annual General Meeting was held on 12 April 2012 where the shareholders approved the
continued ...

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 FUNDAMENTALS OF IFRS 6.3
6.3

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

... continued
financial statements. These were filed by the company with the Statutory Board on 15 April 2012. Here, the approval date is 25 March
2012 when the board approved them for issue. Thus, all post reporting period events between 1 January 2012 and 25 March 2012
need to be considered for evaluating whether they are to be accounted or reported under IAS 10.

Sometimes, the management of an entity is required to issue its financial statements for
approval to a supervisory board made up generally of representatives of shareholders, workers’
representatives and other stakeholders. In such cases, the financial statements are authorised
for issue when the management authorises them for issue to the supervisory board.
Example 4
The management of XYZ Ltd issued the draft financial statements to the supervisory board on 20 March 2012. The supervisory board
approved them on 22 March 2012. Thereafter, the shareholders approved them in the Annual General Meeting held on 15 April 2012.
The approved financial statements were filed with the Statutory Board on 25 April 2012. In this case, the date of approval is 20 March
2012.

Events after the reporting period include all the events up to date when the financial
statements are authorised for issue, even if those events occur after the public announcement
of profit or of other selected financial information.
Recognition and Measurement
The nature and circumstances of all post reporting events should be material so that users of
the financial statements are made aware of them. This Standard divides the events after the
reporting period into two categories namely adjusting events and non-adjusting events after
the reporting period.
Adjusting events after the reporting period
Adjusting events after the reporting period are those events that provide evidence of
conditions that existed at the end of the reporting period. In order to reflect adjusting events
after the reporting period, an entity shall adjust the amounts already recognised in its financial
statements, or is required to recognise items that were not previously recognised:
 The settlement after the reporting period of a court case that confirms that an entity
had a present obligation at the end of the reporting period. The entity either –
 adjusts any previously recognised provision related to this court case in accordance
with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; or
 recognises a new provision.
The entity shall not merely disclose a contingent liability because the settlement
provides additional evidence in the form of ‘opinion of experts’ as described in IAS 37
Provisions, Contingent Liabilities and Contingent Assets.
Example 5
A customer had filed a suit against an entity in the year 2010 and a corresponding contingent liability was disclosed. The entity
prepared the financial statements for the period ended on 31 March 2012. In April 2012, the court case settled resulting in an
obligation for the entity. The financial statements were authorised for issue on 25 May 2012. Though the court case was filed
by the customer in 2010, the company had not recorded any liability then because it was not certain about the result. This is
an adjusting event after the reporting date and, therefore, a new provision as per IAS 37 is to be recognised.

 The receipt of information after the reporting period indicating that an asset was
impaired at the end of the reporting period, or that the amount of a previously recognised
impairment loss for that asset needs to be adjusted.

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6.4
6.4 CHAPTER SIX

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

Example 6
The bankruptcy of a customer that occurs after the reporting period usually confirms that a loss existed at the end of the reporting period
on a trade receivable and that the entity needs to adjust the carrying amount of the trade receivable.
An entity prepared its financial statements for the reporting period ended March 31 2012. In May 2012, the company received
a liquidator’s notice indicating that the amount of 10 due from a customer would be irrecoverable. The financial statements
were authorised for issue on 30 June 2012. The fact is that the irrecoverable debt was in existence at the reporting period, but
the problem of its collection was not yet known to the company. The receipt of the notice represents an event after the
reporting period and it provides additional information to the company on the status of the debt at the reporting date. This is an
adjusting event and the company has to make full provision for the amount outstanding to reflect the most up-to-date status of
the debt in the financial statements.

Example 7
The sale of inventories after the reporting period may give evidence about their net realisable value at the end of the reporting period.
An entity carries its inventory at the lower of cost and net realisable value. At 31 December 2011 the cost of inventory, determined
under FIFO method, as reported in its financial statements for the period then ended, was 20. Due to recession in the market, the
inventory could not be sold during January 2012. The company entered into an agreement to sell the entire inventory for 14. The
financial statements were authorised for issuance on 15 February 2012. This is an adjusting event. The entity should recognise a write-
down of 6 in financial statements for the reporting period ended 31 December 2011.

 The determination after the reporting period of the costs of the assets purchased, or
the proceeds from assets sold, before the end of the reporting period.
Example 8
An entity closes its books of account on 31 December 2011. The entity had agreed to sell an asset to another entity on 20 December
2011. The price of the asset was, however, determined on 15 January 2012, ie, after the reporting date. The financial statements were
authorised for issue on 15 February 2012. Therefore, the determination of the price is an adjusting event and need to be taken into
account in the financial statements.

 The discovery of fraud or errors that show that the financial statements are incorrect.
Non-adjusting events after the reporting period
Non -adjusting events after the reporting period are those events that are indicator of
conditions that arose after the reporting period. In order to reflect the non-adjusting events
after the reporting period, an entity shall not adjust the amounts recognised in the financial
statements. Instead, it shall provide specific disclosures considering the materiality of the
event that has occurred.
Example 9
An entity has investments worth 10 that is recognised in Statement of Financial Position. Between the end of the reporting period and
the date when the financial statements are authorised for issue, there was a decline in the market value of the investments. The decline
does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances that have arisen
subsequently. Therefore, the entity does not adjust the amounts recognised in its financial statements for the investments, rather gives
additional disclosures if the information is material enough.

Example 10
The reporting period of an entity ends on 30 June 2012. The financial statements were authorised for issue on 15 October 2012. In
September 2012, the company was sued by a customer who claimed that the goods supplied in February 2012 were sub-standard.
Based on the advice of the company’s legal counsel, it was quite likely that the customer would receive compensation from the entity.
This is a non-adjusting event. The entity should disclose the event in the notes to the financial statements.

Example 11
The destruction of inventory by fire, after the end of the reporting period but before the date of authorisation for issue, would be a non-
adjusting event. It would not justify writing down that inventory to a nil net present value in the financial statements being prepared,
since it reflects circumstances that occurred in the following period.

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 FUNDAMENTALS OF IFRS 6.5
6.5

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

Dividends
If an entity declares dividends to holders of equity instruments after the reporting period but
before the financial statements are authorised for issue, the entity shall not recognise those
dividends as a liability at the end of the reporting period. It is because, they do not meet the
criteria of a present obligation as per IAS 37. In addition, an entity’s past practice of paying
dividends cannot be considered a constructive obligation as such practices do not give rise to
a liability to pay dividends. Therefore, the very concept of proposed dividend will now
disappear from the financial statements. Such dividends are disclosed in the notes in
accordance with IAS 1 Presentation of Financial Statements.
Going Concern
The going concern is the assumption that the entity has neither the intention, nor the need to
liquidate, or curtail materially the scale of its operation. An entity shall not prepare its financial
statements on a going concern basis if the management determines after the reporting period
either that it intends to liquidate the entity, cease trading or it has no realistic alternative but
to do so.
Deterioration in operating results and financial position after the reporting period may indicate
a need to consider whether the going concern assumption is still appropriate. If the going
concern is inappropriate, the effect is so pervasive that this standard requires an entity to
make a fundamental change in the basis of accounting, rather than an adjustment to the
amounts recognised within the original basis of accounting.
As per IAS 1 Presentation of Financial Statements, specific disclosures are required if –
 the financial statements are not prepared on a going concern basis; or
 management is aware of material uncertainties related to events or conditions that
may cast significant doubt upon the entity’s ability to continue as a going concern. The
events or conditions requiring disclosures may arise after the reporting period.
Example 12
An entity is preparing its financial statements for the year ended 31 March 2012. In April 2012, a major earthquake occurred and the
whole plant of the entity was destroyed. A natural disaster of this kind is not covered by insurance policy taken out by the entity. To
restart the business, the entity failed to raise adequate capital and, therefore, decided to close down the whole operation. Therefore,
the financial statements to March 2012 should be prepared on a liquidation basis, not on a going concern basis.

Disclosure
Date of Approval for Issue
An entity shall disclose the date when the financial statements were authorised for issue and
who gave that authorisation. If the entity’s owners or others have the power to amend the
financial statements after issue, the entity shall disclose that fact. It is important for users to
know at which point in time the financial statements were authorised for issue, since the
financial statements do not reflect events after this date.
Example 13
Notes to the financial statements of ABC Ltd will include the following :
The financial statements for the year ended as on 31 March 2012, have been approved for issue with a resolution by the Board of
Directors on 15 April 2012.

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6.6
6.6 CHAPTER SIX

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

Updating disclosure about conditions at the end of the reporting period
If an entity receives information after the reporting period about conditions that existed at
the end of the reporting period, it shall update disclosures that relate to those conditions, in
the light of the new information. An entity shall update the disclosures, irrespective of any
adjustments made to the amounts that are recognised in its financial statements.
Example 14
An entity has a contingent liability in its financial statements on 31 March 2012. An evidence is available relating to this contingent
liability after the reporting period and before the approval of the financial statements. In addition to considering whether the entity should
recognise a provision as per IAS 37, the entity should update its disclosures about the contingent liability in the light of that evidence.

Non-adjusting events after the reporting period

If non-adjusting events after the reporting period are material, non-disclosure could influence
the economic decisions that users make on the basis of the financial statements. Accordingly, an
entity shall disclose the following for each material category of non-adjusting event after reporting
period –
 The nature of the event; and
 An estimate of its financial effect, or a statement that such an estimate cannot be made.
Example 15
ABC Ltd closed its financial statements on 31 December 2011. On 1 January 2012, an office building with a net book value of 100
was severely damaged by earthquake. It is expected that the insurance company will compensate for the claim but still the proceed
will fall short by 50. The company needs to give disclosure regarding this non-adjusting event specifying its nature as well as an
estimate of the financial effect.

Example 16
ABC Ltd is having negotiations with the government for the expropriation of a plot of land by the latter on which a part of the factory
is situated. The financial effect of this has to be disclosed in the notes. If an estimate of its financial effect cannot be made, disclosure
should be made through a statement.

The following are examples of non-adjusting events after reporting period that would generally
result in disclosure –
 A major business combination or disposing of a major subsidiary after the end of the
reporting period and before the authorisation date.
Example 17
ABC Ltd closes its financial statements on 31 December 2011. On 17 January 2012, the company announced its intension to acquire
XYZ Ltd for a consideration of 100. The transaction is yet to be approved by ABC Ltd’s shareholders. The acquisition is expected to
be completed by the end of September 2012. This is a non-adjusting event which needs to be disclosed.

 Announcing a plan to discontinue an operation;

 Major purchases of assets, classification of assets as held for sale in accordance with
IFRS 5, other disposals of assets, or expropriation of major assets by governments;
 The destruction of major production plant by a fire after the reporting period;
 Announcing, or commencing the implementation of, a major restructuring as per IAS 37;
 Major ordinary share transactions and potential ordinary share transactions after the
reporting period;

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 FUNDAMENTALS OF IFRS 6.7
6.7

EVENTS AFTER THE REPORTING PERIOD (IAS 10)

 Abnormally large changes after the reporting period in asset prices or foreign exchange
rates;
 Changes in tax rates or tax laws enacted or announced after the reporting period that
have a significant effect on current and deferred tax assets and liabilities as per IAS 12
Income Taxes;
Example 18
For ABC Ltd, the income tax rate is 30%. A new income tax rate of 35% is enacted after the reporting period but before the date the
financial statements were authorised for issue. If the effect of the new tax rate has material effect on deferred tax liabilities and deferred
tax assets, the company shall disclose details of the changes in the income tax rate and its related effect on the company.

 Entering into significant commitments or contingent liabilities, eg, by issuing significant

guarantees; and
 Commencing major litigation arising solely out of events that occurred after the reporting
period.

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