IAS 10 – Events After the Reporting Period

International Accounting Standard 10 provides guidance for the accounting treatment of the events, which take place after the reporting period, but before the date of authorization of financial statements for the issue, related disclosure requirements, and in what circumstances:

(a) The entity will adjust its financial statements before issuance, and

(b) When only disclosures are required for these events.

Events after the reporting period are events, which could be favorable or unfavorable, that occurs between the end of the reporting period and the date that the financial statements are authorized for issue. These events can either be adjusting or non-adjusting events:

Adjusting & Non-Adjusting events

1. Adjusting events:
   • An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.
   • IAS 10 recommends to adjust financial statements for adjusting events only.
2. Non-adjusting events: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period.

IAS 10 recommends not to adjust for non-adjusting events.

 Examples of Adjusting Events

• An entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.
• Bankruptcy of a customer that occurs after reporting date that confirms a loss existed at the reporting date on trade receivables.
• Settlement of litigation against the entity after the reporting date, in respect of events that occurred before the end of the reporting period, may provide evidence of the existence and amount of liability at the reporting date. A liability in respect of the litigation may be recorded in the financial statements.
• Detection of fraud or errors after the reporting period may indicate that the financial statements are misstated. Financial statements may be adjusted to reflect accounting for those errors or frauds that relate to the present or prior reporting periods in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.
• Reduction in Net realizable Value of Inventory after the reporting date, stated at cost at year-end, indicated from the sale of inventory at low selling price after the reporting date, provides evidence that the value of inventory has fallen down and the entity needs to adjust the value of inventory.

Examples of non-adjusting Events

• If an entity declares dividends after the reporting period, the entity shall not recognize those dividends as a liability at the end of the reporting period. That is a non-adjusting event.
• Value of investment falls after the reporting period need not to adjust.
• If an inventory is destroyed due to a fire in the warehouse is a no-adjusting event.
• Destruction of assets of the entity by floods occurring after the reporting period does not indicate that the assets of the entity were impaired at the end of the reporting period. Hence, the financial statements should not be adjusted.
• Initiation of litigation against the company arising out of events that occurred after the reporting period does not indicate the existence of liability at the reporting date and shall not, therefore, trigger the recognition of liability in the financial statements.
• Any business acquisition after the reporting date.

Disclosure

If non-adjusting events after the reporting period are material, IAS 10 prescribes disclosures.

The required disclosures are

• the nature of the event and
• an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made.

Entities should disclose the date when the financial statements were authorized for issue and who gave that authorization. If the enterprise’s owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact.

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, Oracle Certified, CA Articles from Big4

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a Tax and IFRS coach and the founder of accountingblogger.com