When should a reporting entity recognise events after the reporting period in the financial statements that are being finalised?
What are the disclosures that should be given about the date when the financial statements were authorised for issue and about the events after the reporting date?
The answers look a bit colorful but are spot on and short……
The three important terms were it is all about are:
1. Events after the reporting period:
are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. (IAS 10 3 Definitions)
2. Adjusting events:
are events occurring after the reporting date that provide evidence of conditions that existed at the end of the reporting period. (IAS 10 3 Definitions)
Examples of adjusting events include:
- events that indicate that the going concern assumption in relation to the whole or part of the entity is not appropriate;
- settlements after reporting date of court cases that confirm the entity had a present obligation at reporting date;
- receipt of information after reporting date indicating that an asset was impaired at reporting date;
- bankruptcy of a customer that occurs after reporting date that confirms a loss existed at reporting date on trade receivables;
- sales of inventory after reporting date that give evidence about their net realisable value at reporting date;
- discovery of fraud or errors that show the financial statements are incorrect.
3. Non-adjusting events:
are events occurring after the reporting date that do NOT provide evidence of conditions that existed at the end of the reporting period. (IAS 10 3 Definitions)
Examples of non-adjusting events, that would generally result in disclosure, include:
- major business combinations or disposal of a major subsidiary; Events after the Reporting period
- major purchase or disposal of assets, classification of assets as held for sale or expropriation of major assets by government;
- destruction of a major production plant by fire after reporting date;
- announcing a plan to discontinue operations;
- announcing a major restructuring after reporting date; Events after the Reporting period
- major ordinary share transactions; Events after the Reporting period
- abnormally large changes, after the reporting date. in asset prices or foreign exchange rates;
- changes in tax rates or tax law; Events after the Reporting period
- entering into major commitments such as guarantees; Events after the Reporting period
- commencing major litigation arising solely out of events that occurred after the reporting date.
Recognition and measurement
An entity shall adjust the amounts recognised in its financial statements and/or relevant disclosures to reflect such events.
Non – adjusting events
An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period.
An entity shall not recognise those dividends that are declared after reporting date as a liability at the end of the reporting period.
An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting date that either:
Presentation and disclosures
An entity shall present and disclose information that enables users of the financial statements to evaluate the effects of events after reporting period:
In the Notes to the financial statements: Events after the Reporting period
See also the IFRS Foundation