IAS 10 Events after the Reporting Period

IAS 10 Events after the Reporting Period

 

Background

IAS 10 Events after the reporting period contains requirements for when events after the end of the reporting period must be adjusted in the financial statements. Adjustment events are those that provide evidence of conditions existing at the end of the reporting period, while non-adjustment events are indicative of conditions that arise after the reporting period (the latter is revealed when material).

IAS 10 was reissued in December 2003 and applies to annual periods beginning on or after January 1, 2005.

 

Objective

The objective of this Standard is to prescribe:

(a) when an entity must adjust its financial statements for subsequent events the reporting period; and

(b) the disclosures that an entity must give about the date that the financial statements were authorized for issue and on subsequent events the reporting period.

The Standard also requires an entity not to prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.

 

Scope

IAS 10 must be applied in the accounting and disclosure of the events occurred after the reporting period.

 

Key definition

Event after the reporting period

Any favourable or unfavourable event, that occurred between the end of the reporting period and the date when the financial statements are authorised for issue.

 

Adjusting event

The event after the reporting period which offers further evidence of situations that existed at the end of the reporting period. It includs an event that shows that the going concern assumption (wholly or partially) in relation to the enterprise is not appropriate.

 

Non-adjusting event

Any event which occurred post reporting period, and is indicative of a condition that happened after the end of the reporting period.

 

Recognition and measurement

Adjusting events after the reporting period - An entity will adjust the amounts recognized in its financial statements to consider the impact of adjusting events after the reporting period.

Examples of adjusting events after the reporting period:

·       The settlement after the reporting period of a court case confirming that the entity had a present obligation at the end of the reporting period. The entity adjusts any previously recognized provision related to this court case in accordance with IAS 37 Provisions, contingent liabilities and contingent assets or recognizes a new provision. The entity not only discloses a contingent liability because the arrangement provides additional evidence that would be considered in accordance with paragraph 16 of IAS 37.

·       determination after the reporting period of the cost of assets purchased, or revenue from assets sold, before the end of the reporting period.

·       the determination after the reporting period of the amount of the profit sharing or bonus payments, whether the entity had a present legal or implicit obligation at the end of the reporting period to make such payments as a result of events prior to that date (see IAS 19 Employee Benefits).

·       The discovery of fraud or errors that demonstrate that the financial statements are incorrect.

 

Non-adjusting events after the reporting period - An entity will not adjust the amounts recognized in its financial statements to reflect non-adjustable events after the reporting period.

Example of an event that does not fit after the reporting period;

Decrease in the fair value of investments between the end of the reporting period and the date the financial statements are authorized for issue. The decrease in fair value is not normally related to the condition of the investments at the end of the reporting period, but reflects circumstances that have arisen subsequently. Therefore, an entity does not adjust the amounts recognized in its financial statements for investments. Similarly, the entity does not update the disclosed amounts for investments at the end of the reporting period, although it may need to disclose additional information.

 

Dividends: If an entity declares dividends to holders of equity instruments (as defined in IAS 32 Financial Instruments: Presentation) after the reporting period, the

The entity will not recognize those dividends as a liability at the end of the reporting period.

 

Going concern

An entity will not prepare its financial statements on a going concern basis if management determines after the reporting period whether it intends to liquidate the entity or stop trading, or has no realistic alternative but to do so. .

IAS 1 specifies the required disclosures if:

(a) the financial statements are not prepared on a going concern basis; or

(b) management is aware of material uncertainties related to events or conditions that may raise significant doubts about the entity's ability to continue as a going concern. Events or conditions that require disclosure may arise after the reporting period.

 

Disclosure

Non-adjustable events should be disclosed if they are so important that non-disclosure would affect the ability of users to make appropriate evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made.

A company must update disclosures related to conditions that existed at the end of the reporting period to reflect any new information it receives after the reporting period about those conditions.

Companies must disclose the date the financial statements were authorized for issue and who gave that authorization. If the owners of the company or others have the power to modify the financial statements after issuance, the company must disclose that fact.