SESSION 29 – IAS 10 EVENTS AFTER THE REPORTING PERIOD OVERVIEW Objective To define events after the reporting period To describe the treatment of events after the reporting period INTRODUCTION Objective Scope Definitions RECOGNITION AND MEASUREMENT Adjusting events Non adjusting events Dividends Going Concern DISCLOSURE 2901 SESSION 29 – IAS 10 EVENTS AFTER THE REPORTING PERIOD INTRODUCTION 1.1 Objective The objective of IAS 10 is to describe: when an entity should adjust its financial statements for events after the reporting period, and the disclosures an entity should give about the date when the financial statements were authorised for issue and about events after the end of the reporting period 1.2 Scope IAS 10 should be applied in the accounting for, and disclosure of, events after the reporting period 1.3 Definitions Events after the reporting period are those events, both favourable and unfavourable, that occur between the end of the reporting period and the date on which the financial statements are authorised for issue Two types of events can be identified: those that provide further evidence of conditions that existed at the end of the reporting period (adjusting events after the end of the reporting period), and those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events after the end of the reporting period) RECOGNITION AND MEASUREMENT 2.1 Adjusting events An entity should adjust its financial statements for adjusting events after the end of the reporting period Examples of adjusting events are: the resolution after the end of the reporting period of a court case which, because it confirms that an entity already had a present obligation at the end of the reporting period, requires the entity to recognise a provision instead of merely disclosing a contingent liability or adjusting the provision already recognised, the bankruptcy of a customer which occurs after the end of the reporting period and which confirms that a loss already existed at the end of the reporting period on a trade receivable account, the discovery of fraud or error that show that the financial statements were incorrect, and the sale of inventories after the year end at an amount below their cost 2902 SESSION 29 – IAS 10 EVENTS AFTER THE REPORTING PERIOD 2.2 Non adjusting events An entity should not adjust its financial statements for non-adjusting events after the end of the reporting period The following are examples of non-adjusting events that may be of such importance that non-disclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions: a major business combination after the end of the reporting period, the destruction of a major production plant by a fire after the end of the reporting period, abnormally large changes after the end of the reporting period in asset prices or foreign exchange rates, and a decline in market value of investments between the end of the reporting period and the date on which the financial statements are authorised for issue Commentary The fall in market value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances, which have arisen in the following period Therefore, an entity does not adjust the amounts recognised in its financial statements for that investment 2.3 Dividends If dividends are proposed or declared after the end of the reporting period, an entity should not recognise those dividends as a liability This is a change from previous practice IAS requires an entity to disclose the amount of dividends that were proposed or declared after the end of the reporting period but before the financial statements were authorised for issue This disclosure must be made in the notes to the accounts, not on the face of the statement of financial position 2.4 Going Concern An entity should not prepare its financial statements on a going concern basis if management determines after the end of the reporting period that: it intends to liquidate the entity or to cease trading, or it has no realistic alternative but to so Deterioration in operating results and financial position after the end of the reporting period may indicate a need to consider whether the going concern assumption is still appropriate 2903 SESSION 29 – IAS 10 EVENTS AFTER THE REPORTING PERIOD If the going concern assumption is no longer appropriate the IAS requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting DISCLOSURE An entity should disclose the date when the financial statements were authorised for issue and the name of the governing body that gives that authorisation If the entity’s owners or others have the power to amend the financial statements after issuance, the entity should disclose that fact Commentary It is important for users to know when the financial statements were authorised for issue, as the financial statements not reflect events after this date An entity should disclose the following in respect of non-adjusting events that are of such importance that non-disclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions the nature of the event, and an estimate of its financial effect, or a statement that such an estimate cannot be made The following disclosures are required by IAS if the accounts are not prepared on the basis of the going concern assumption: A note saying that the financial statements are not prepared on a going concern basis, or management is aware of material uncertainties related to events or conditions, which may cast significant doubt upon the entity’s ability to continue as a going concern FOCUS You should now be able to: define an event after the end of the reporting period; account for and disclose events after the end of the reporting period in accordance with IAS 10; record the entries for dividends paid and proposed in the financial statements; discuss the problem of accounting for events after the end of the reporting period, including reclassification, window dressing etc 2904 ... adjust its financial statements for adjusting events after the end of the reporting period Examples of adjusting events are: the resolution after the end of the reporting period of a court case... events after the end of the reporting period), and those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events after the end of the reporting. .. the financial statements after issuance, the entity should disclose that fact Commentary It is important for users to know when the financial statements were authorised for issue, as the financial