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IAS 10 - Events after the reporting period - TutnIQ
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IAS 10 - Events after the reporting period

Dealing with events between period end and authorization date

  • This tutorial explains how to disclose and account for events that occur between the end of the reporting period and the date when the financial statements are authorized for issue, in accordance with IAS 10, part of the International Financial Reporting Standards (IFRS).

  • Introduction and definitions

  • Events after the reporting period are events (favorable and unfavorable) that occur between the end of the reporting period (normally the financial year-end) and the date when the financial statements are authorized for issue. IAS 10 prescribes the accounting treatment and disclosure requirements for events after the reporting period.

    This tutorial will discuss:

    • The date the financial statements are authorized for issue;
    • The different types of event after the reporting period;
    • The treatment of dividends declared after period end;
    • The consequences of going concern issues arising after the reporting period; and
    • The accounting treatment and disclosure requirements applicable to events after the reporting period;

    A copy of IAS 10 can be downloaded from the IFRS Foundation. You will need to register if you want to download IAS 10, but this is free.

    IAS 10 applies to reporting periods beginning on or after 1 January 2005.

    Authorization for issue

    Financial statements are authorized for issue when they are approved by management (aka the Board of Directors) for issue.

    In some instances the financial statements must be approved by a supervisory board comprising non-executive members, in such situations the financial statements are authorized for issue when management authorizes them for issue to the supervisory board.

    It may also happen that the financial statements must be approved by the shareholders. When this is the case, the financial statements are authorized for issue when they authorized for issue to the shareholders.

    Why is this important?

    The date the financial statements are authorized for issue is important as this will be the cutoff date for adjusting the financial statements. It will not be possible to report any events occurring after this date as the financial statements may have already been issued or published.

    Types of event after the reporting period

    There are two types of event after the reporting period:

    • Adjusting events: These provide evidence of conditions that existed at the end of the reporting period; and

    • Non-adjusting events: These are indicative of conditions that arose after the end of the reporting period.

  • Per IAS 10, events after the reporting period are events that occur between the end of the reporting period and the date when the financial statements are authorized for issue. The standard focuses on the following events:

    Please select the correct answer:

    out of points awarded.

  • ABC Limited has recently published annual financial statements for the year ended 31 December 20X1.

    What is the cut-off date for consideration of events after the reporting period per IAS 10?

    Please select the correct answer:

    out of points awarded.

  • Recognition and measurement

  • Adjusting events:

    In the case of adjusting events after the reporting period, the amounts in the financial statements (at the end of the reporting period) must be adjusted to reflect the adjusting event. This may entail recognizing an amount which was not previously recognized. [Tip: This typically requires an adjusting journal in the general ledger.]

    Examples of adjusting events

    • Litigation: A court finding confirms that a present obligation existed at the end of the reporting period. In such a case it will be necessary to either adjust a provision or change a contingent liability into a provision.

    • Evidence that an asset was impaired at the end of the reporting period:

      • Trade debtor (i.e. receivable) goes bankrupt after the end of the reporting period. This may provide evidence that the customer was in financial difficulty and that a loss existed at the end of the reporting period, requiring an adjustment to the carrying amount of the receivable.
      • Sales of inventory after the reporting period may provide evidence of the net realizable value of the inventory at the end of the reporting period.

    Non-adjusting events:

    In the case of non-adjusting events after the reporting period, no adjustment to the amounts in the financial statements may be made at the end of the reporting period, although disclosure may be necessary if the event is considered to be material.

    Examples of non-adjusting events

    • Decline in the market value of investments, AFTER the end of the reporting period.
    • Loss of assets due to fire / flood / tornado / etc, AFTER the end of the reporting period.

    Decision logic

    The following flowchart illustrates the decision logic to be applied when dealing with events after the reporting period:

  • Image - Flickr - Michael Lockyear
  • The following events occurred shortly after period-end. Which are most likely to be considered adjusting events after the reporting period, per IAS 10:

    Please select the correct answer(s):

    out of points awarded.

  • The following events occurred shortly after period-end. Which are most likely to be considered non-adjusting events after the reporting period, per IAS 10:

    Please select the correct answer(s):

    out of points awarded.

  • Tricky issues: dividends and going concern

  • Dividends

    Dividends payable are only recognized as a liability once the dividend has been declared. This means that if the dividends are not declared at the end of the reporting period, no liability may be recognised. If dividends have been proposed during the period, but only declared after the reporting period, there is still no liability. Dividend information is disclosed per IAS 1 (Presentation of Financial Statements).

    Going concern

    The IFRS Conceptual Framework indicates that the financial statements are normally prepared on the assumption that the entity will continue in operation for the foreseeable future (i.e. the entity is a going concern).

    IAS 10 states that the financial statements, at the end of the reporting period, may not be prepared on the going concern basis if management decides, after 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.

    If the going concern basis of accounting is assessed to be inappropriate, IAS 10 requires a fundamental change in the basis of accounting (as opposed to simply adjusting the amounts prepared under the going concern basis).

    IAS 1 (Presentation of Financial Statements) specifies the required accounting treatment and disclosures in such circumstances.

  • Mikeville Traders Limited has a 31 December year-end.

    The directors plan to have a meeting to declare a dividend for the year during December 20X1, but due to the CFO going on vacation, reschedule the meeting to 5 January 20X2.

    On 5 January 20X2 the company declares a dividend.

    Can a liability for the dividend be recognized at 31 December 20X1?

    Please select the correct answer:

    out of points awarded.

  • Cement Garden Limited has a 31 December financial year-end. On 7 January 20X2, a major volcanic eruption destroyed the company's production facilities. As a result the company suspended trading operations. The company is not insured for volcanic eruptions and does not have sufficient cash reserves to rebuild the factory and resume operations. External finance is not available. Management have concluded that the company is unlikely to operate as a going concern in the foreseeable future.

    How will the change in going concern be reflected in the annual financial statements for the year ended 31 December 20X1, per IAS 10?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • Disclosure

  • Date of authorization of the financial statements

    The financial statements must disclose:

    • The date on which the financial statements were authorized for issue;
    • Who authorized the financial statements for issue; and
    • Whether the entity's owners, or others, have the power to change the financial statements after they have been issued.

    Adjusting events

    The amounts in the financial statements and related disclosures must be updated to reflect the effect of the new information. It is not necessary to disclose that there has been an event after the reporting period, as the actual financial statement amounts will have been adjusted.

    Non-adjusting events

    Non-adjusting events are disclosed if material. The nature of the event and estimate of the financial effect must be given. [Tip: Do not forget the tax effect]. If an estimate cannot be made, a statement to that effect must be made.

    When is an event considered material?

    An event is material if knowledge of the event could influence the economic decisions of the users of the financial statements.

  • Which of the following should be disclosed per IAS 10?

    Please select the correct answer(s):

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • Test your knowledge

    Test your knowledge of IAS 10 (Events after the Reporting Period).

  • Mikeville Limited

    Mikeville Limited's annual financial statements for the year ended 31 December 20X1 were authorized for issue on 28 February 20X2.

    On 31 November 20X1, the company was sued as a result of alleged environmental damage:

    • On 31 December the company's lawyers indicated that they believed that the company would win the case, but that there was a stronger than remote possibility that the company might actually lose the case.
    • On 15 February 20X2 the judge ruled against Mikeville Limited, ordering Mikeville Limited to rectify the environmental damage. It is estimated that this will cost $300,000.

    Answer the following questions relating to IAS 10 (Events after the Reporting Period). Assume all amounts to be material.

  • Is the ruling of the judge an adjusting event or non-adjusting event after the reporting period?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • What effect will the ruling of the judge have on the annual financial statements for the year ended 31 December 20X1?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • How would the legal case be shown in the annual financial statements for the year ended 31 December 20X1, if the judge had delivered his verdict on 1 March 20X2?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • Loganator Corp

    Loganator Corp's annual financial statements for the year ended 31 December 20X1 were authorized for issue on 28 February 20X2.

    On 15 January 20X2, a customer owing Loganator Corp $100,000 at 31 December 20X1, declared bankruptcy:

    • On 28 February 20X2, the management of Loganator Corp believed that the company would not receive anything from the bankrupt company.
    • On 25 March 20X2 the liquidator of the bankrupt company indicated that creditors would receive '10 cents on the dollar' in final settlement of outstanding amounts.

    The bankrupt company had been losing market share for a number or years as a result of cheap imports from Tarantistan.

    Answer the following questions relating to IAS 10 (Events after the Reporting Period). Assume all amounts to be material.

  • Is the bankruptcy of the customer an adjusting event or non-adjusting event after the reporting period?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • How will this matter be reflected in the annual financial statements of Loganator Corp for the year ended 31 December 20X1?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • Spemony Split Limited

    Spemony Split Limited's annual financial statements for the year ended 31 December 20X1 were authorized for issue on 28 February 20X2.

    On 17 February 20X2, there was a fire at a fuel depot operated by the company, causing damage of approximately $1,000,000.

    Answer the following questions relating to IAS 10 (Events after the Reporting Period). Assume all amounts to be material.

  • Is the fire an adjusting event or non-adjusting event after the reporting period?

    Please select the correct answer:

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

  • How will this matter be reflected in the annual financial statements of Spemony Split Limited for the year ended 31 December 20X1?

    Please select the correct answer(s):

    out of points awarded.

    Unregistered users can only do the first 5 questions. Please register and sign in!

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