IAS 10: EVENTS AFTER THE REPORTING PERIOD

IAS 10 sets out the criteria for recognising events occurring after the reporting date.

The standard gives the following definition.

Events occurring 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 evidence of conditions that existed at the end of the reporting period –
adjusting
 Those that are indicative of conditions that arose after the reporting period – non-
adjusting

Between the end of the reporting period and the date the financial statements are authorised (ie
for issue outside the organisation), events may occur which show that assets and liabilities at the
end of the reporting period should be adjusted, or that disclosure of such events should be given.

Events requiring adjustment

The standard requires adjustment of assets and liabilities in certain circumstances.

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting
events after the reporting period. An entity shall not adjust the amounts recognised in its
financial statements to reflect non-adjusting events after the reporting period. (IAS 10)

An example of additional evidence which becomes available after the reporting period is where
a customer goes into liquidation, thus confirming that the trade account receivable balance
at the year-end is uncollectable.

In relation to going concern, the standard states that, where operating results and the financial
position have deteriorated after the reporting period, it may be necessary to reconsider whether
the going concern assumption is appropriate in the preparation of the financial statements.

Examples of adjusting events would be:

 Evidence of a permanent diminution in property value prior to the year end
 Sale of inventory after the reporting period for less than its carrying value at the year end
 Insolvency of a customer with a balance owing at the year end
 Amounts received or paid in respect of legal or insurance claims which were in
negotiation at the year end
 Determination after the year end of the sale or purchase price of assets sold or purchased
before the year end

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  Evidence of a permanent diminution in the value of a long-term investment prior to the
year end
 Discovery of error or fraud which shows that the financial statements were incorrect

Events not requiring adjustment

The standard then looks at events which do not require adjustment. The standard gives the
following examples of events which do not require adjustments:

 Acquisition of, or disposal of, a subsidiary after the year end

 Announcement of a plan to discontinue an operation
 Major purchases and disposals of assets
 Destruction of a production plant by fire after the reporting period
 Announcement or commencing implementation of a major restructuring
 Share transactions after the reporting period
 Litigation commenced after the reporting period

But note that, while they may be non-adjusting, some events after the reporting period will
require disclosure.

If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions of users taken on the basis of the financial statements. Accordingly, an entity
shall disclose the following for each material category of non-adjusting event after the reporting
period:

a) The nature of the event

b) An estimate of its financial effect, or a statement that such an estimate cannot be made

The example given by the standard of such an event is where the value of an investment falls
between the end of the reporting period and the date the financial statements are
authorised for issue. The fall in value represents circumstances during the current period, not
conditions existing at the end of the previous reporting period, so it is not appropriate to adjust
the value of the investment in the financial statements. Disclosure is an aid to users, however,
indicating 'unusual changes' in the state of assets and liabilities after the reporting period.

The rule for disclosure of events occurring after the reporting period which relate to conditions
that arose after that date, is that disclosure should be made if non-disclosure would hinder the
user's ability to make proper evaluations and decisions based on the financial statements. An
example might be the acquisition of another business.

Test your understanding

Shortly after the reporting date a major credit customer of a company went into liquidation
because of heavy trading losses and it is expected that little or none of the TZS 12,500 debt will

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be recoverable. TZS 10,000 of the debt relates to sales made prior to the year end; TZS 2,500
relates to sales made in the first two days of the new financial year.

In the 2011 financial statements the whole debt has been written off, but one of the directors has
pointed out that, as the liquidation is an event after the reporting date, the debt should not in fact
be written off but disclosure should be made by note to this year’s financial statements, and the
debt written off in the 2012 financial statements.

Advise whether the director is correct.

Solution
Under IAS 10 an event after the reporting date is an event which occurs between the financial
period end and the date on which the financial statements are approved by the board of directors.

TZS 10,000 of the receivable existed at the reporting date and the liquidation of the major
customer provides more information about that receivable.

In accordance with IAS 10, this is an adjusting event which would require the debt existing at the
reporting date to be written off in the 2011 financial statements.

The remaining receivable did not exist at the reporting date and should therefore be written off in
the 2012 financial statements.

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Practice Question one

Ngadu Plc is in the process of finalizing its financial statements for year ended 31 March 2022.
The draft statements were completed on 14 April 2022, and the audit is currently in progress.
The financial statements are expected to be approved by the board of directors on 15 May 2022,
and published on 20 May 2022. The following matters have come to light during the audit and
your advice is requested. No adjustment has yet been made for any of the following.

1) Closing inventory at 31 March 2022 includes 100 items carried at cost TZS 5,000 each. New
safety regulations were announced on 5 April 2022 with immediate effect. The items of
inventory do not comply with these regulations. As a result, the net realizable value of the
inventory is only TZS 4,500 each.

2) An investment in unquoted equity instruments was held by Ngadu Plc at 31 March 2022 at an
amount of TZS 3.5 million. This was its fair value on 30 September 2021, the most recent
reporting date. Due to the unavailability of professional valuers, an updated fair value was
not available until 15 April 2022. On this date, the valuer provided an estimate of fair value
of TZS 2.8 million.

3) Ngadu Plc was being sued on 31 March 2022. At that date the case had been heard, but the
judgment was only handed down on 20 April 2022. The outcome was that Ngadu was found
liable for damages and costs totaling TZS 3.1 million. On 21 April 2022, Ngadu filed a claim
with its insurers and on 28 April 2022, was notified that the insurer would cover TZS 2.6
million of the loss.

4) On 30 March 2022, Ngadu paid TZS 500 for a raffle ticket to support a local charity. On 3
April 2022, the company was notified that it had won first prize of TZS 100,000. The draw
took place on 31 March 2022.

Required
In each case (1) to (4) above, prepare a briefing note advising on the accounting treatment and /
or disclosures required as a result of the event(s) after the reporting date.

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SOLUTION

Briefing note
1. It would appear that the event causing the loss in value only occurred after the reporting date.
There was no condition existing at the reporting date. Had we sold the goods at the reporting
date we would have obtained full price for them. Hence this is a non-adjusting event. If the
loss is material, disclosure of the event should be made in the notes to the financial
statements.

2. Unless it is clear that a particular event between 31 March and 15 April 2022 caused the drop
in the value of this investment, it should be assumed that the investment had in fact lost value
on 31 March 2022, and the subsequent valuation only provided evidence of this. Hence, the
receipt of the valuation is an adjusting event, and the investment should be written down
at the reporting date.

3. The liability existed at the reporting date, but confirmation of the amount was only received
on 20 April 2022. This is an adjusting event, and the treatment of this item in the financial
statements (assuming a nil payment) should be amended to reflect the information received
subsequently. Accordingly, provision should be made for the entire amount of the judgment.
The filing of the insurance claim only took place following the reporting date, hence no
account should be taken of this at 31 March 2022. As confirmation of the success of the claim
was received prior to the signing off date, this should be disclosed in the notes.

4. The prize was actually won before the reporting date. Hence the financial statements should
reflect this even though the notification only arrived on 3 April. This is an adjusting event.

Practice question two

Henderson plc is in the process of finalising its financial statements for year ended 31 July 2014.
The draft statements were completed on 15 August 2014, and the audit is currently ongoing. The
financial statements are expected to be approved by the board of directors on 15 September
2014, and published on 20 September 2014.

The matters (i) to (iv) below have come to light during the audit and you are required to explain
the accounting treatment and/or disclosures required as a result of the event after the reporting
date.
i) The directors of Henderson plc wish to propose a dividend to be paid in November 2014.
No decision has yet been taken on this proposal.

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ii) Some investments held by Henderson plc at the reporting date have fallen significantly in
value since the reporting date due to a shock increase in interest rates by the Central Bank
on 10 August 2014. The effect of the fall in value is material to the company’s financial
position.

iii) Henderson plc has been sued by a client claiming breach of contract. The suit was filed
early in 2014, but the case was heard in August 2014. No provision had been made, as the
directors expected they would win the case. As required by IAS 37 Provisions,
Contingent Liabilities and Contingent Assets disclosure was made of the contingent
liability in the draft financial statements. The outcome of the case, decided on 25 August,
was a judgement against Henderson plc for a material sum in damages.

iv) On 5 August 2014, Henderson plc entered into an agreement to acquire another entity.
The acquisition is planned to close on 15 October 2014