CHAPTER 4

EVENTS AFTER THE

REPORTING PERIOD

Connolly – International Financial Accounting and Reporting – 4th Edition

Course learning outcomes
CLO1: Apply IASs and IFRSs for recognition,
measurement and disclosure of events after the reporting
period by using English.
CLO2: Apply IASs and IFRSs to journalize business
transactions related to events after the reporting period by
using English.
CLO3: Provide optimal solution by evaluating the
accounting information by using English

Connolly – International Financial Accounting and Reporting – 4th Edition

15.1 INTRODUCTION

• Users’ information needs

• Preparers should take account of all available information

when preparing the annual report and financial statements

Connolly – International Financial Accounting and Reporting – 4th Edition

15.2 IAS 10 EVENTS AFTER THE REPORTING PERIOD

• Objective
 to specify when an enterprise should adjust its financial
statements for events occurring after the end of the
reporting period
 the disclosures that should be made about date of
authorisation of financial statements for issue and about
events occurring after the end of the reporting period
• Definition
 Those events, both favourable and non-favourable, which
occur between the end of the reporting period and the date
on which the financial statements are authorised for issue

Connolly – International Financial Accounting and Reporting – 4th Edition

Types of event
• Adjusting events
 Events after the reporting date and before the date of
authorisation of the financial statements that provides
evidence of conditions that existed at the reporting date
 IAS 10 states that where there is a material adjusting
event, the financial statements must be changed to reflect
this event

• Non-adjusting events
 Event after the reporting date and before date of
authorisation of financial statements that is indicative of
conditions that arose after the reporting date
 By definition, no adjustment required to amounts
recognised in the financial statements but possible
disclosure
Connolly – International Financial Accounting and Reporting – 4th Edition
 Adjusting events after the reporting period
• Subsequent determination of the purchase price or
sale proceeds of assets purchased or sold before the
end of the reporting period
• Valuation of a property which provides evidence of
permanent diminution in value
• Receipt of information after the end of the reporting
period which indicates that an asset was impaired at
the end of the reporting period or that a previously
recognised impairment was not adequate
• Sale of inventories after the end of the reporting
period which gives evidence about their NRV at the
end of the reporting period

Connolly – International Financial Accounting and Reporting – 4th Edition

Adjusting events after the reporting period

• Renegotiation of amounts owing by debtors or

insolvency of a debtor
• Bankruptcy of a debtor after the end of the
reporting period that confirms that a loss
existed at the end of the reporting period on
trade receivables
• Amounts received or receivable in respect of
insurance claims which were in the course of
negotiation at the end of the reporting period
• Discovery of errors or frauds which show the
financial statements were incorrect
Connolly – International Financial Accounting and Reporting – 4th Edition
Example 15.1: Adjusting events
Punjab Ltd is a producer and distributor of tea. The company’s year
ended is 31 December. The directors of Punjab are due to sign the
company’s financial statements for the year ended 31 December 2012
on 5 March 2013. The following information is available.

1.Flavoured tea is included in year end inventory at its original cost of

€120,000. Audit work carried out in February 2013 indicated that the tea
was sold for €100,000 in January 2013 due to a fall in demand for such
products during 2012.

2.During 2012 there had been industrial unrest amongst Punjab’s

production workers following automation of one of the manufacturing
processes. Management had sought to make 20% of the workforce
redundant. In February 2013, following protracted negotiations it was
agreed that 15% of the workforce would be made redundant at a cost of
€400,000.

Connolly – International Financial Accounting and Reporting – 4th Edition

Example 15.1: Adjusting events
(Cont’d)

3.On 31 January 2013, €250,000 was paid to Trevor Baggins as

compensation for his removal of Managing Director. Mr Baggins has
been dismissed by the Chairman at the December 2012 Board Meeting
as a result of a serious disagreement over marketing strategy for 2013.

4.It was discovered in January 2013 that a long serving employee had
systematically stolen €250,000 over the previous four years. Material
errors had thus been made in the financial statements over those years
and there is now no chance of recovery.

Requirement

Explain briefly how each of the above transactions should be treated in

the financial statements of Punjab for the year ended 31 December
2012.

Connolly – International Financial Accounting and Reporting – 4th Edition

Example 15.1: Adjusting events
Issue 1:

Inventory is valued at the lower of cost and net realisable value (IAS 2
Inventories – See Chapter 11). Demand fell during 2012 and the sale in
January 2013 provides evidence of conditions that existed at the reporting
date. Therefore it is an adjusting event.

Dr SPLOCI – P/L – Cost of goods gold €20,000

Cr SFP – Inventory €20,000

Issue 2:

This is an adjusting event. The redundancy conditions existed at the

reporting date and the final agreement merely settled the terms. Given its
nature, it might be considered an exceptional item.

Dr SPLOCI – P/L – Redundancy costs €400,000

Cr SFP – Restructuring provision €400,000

Connolly – International Financial Accounting and Reporting – 4th Edition

Example 15.1: Adjusting events

Issue 3:
The dismissal of Mr Baggins took effect before the end of 2012.
Therefore the compensation payment is an adjusting event in
the 2012 financial statements.
Dr SPLOCI – P/L – Termination costs €250,000
Cr SFP – Other payables €250,000
Issue 4:
The discovery of errors/fraud that existed/occurred prior to the
end of the 2012 reporting period is an adjusting event.

Connolly – International Financial Accounting and Reporting – 4th Edition

Non-adjusting events after the reporting period

• Do not result in changes to the amounts recognised in the FS.

They may, however, be of such materiality that their disclosure
is required to ensure that the FS are not misleading.

• If material, disclose for each material category of non-adjusting

event after the reporting date:
 Nature of the event;
 Estimate of the financial effect, or a statement that is not
practicable to make such an estimate; and
 Estimate of the financial effect should be disclosed before
taking account of taxation; and the taxation implications should
be explained where necessary for a proper understanding of
the financial position.

Connolly – International Financial Accounting and Reporting – 4th Edition

Non-adjusting events after the reporting period
• Closing a significant part of the trading activities if not anticipated at the
end of the reporting period
• Acquisition/disposal of subsidiary after the end of the reporting period
• Major purchases/disposals of assets after the end of the reporting period
• Fire after the end of the reporting period which results in the destruction
of a major production plant
• Decline in the value of property and investments held as non current
assets, if it can be demonstrated that the decline occurred after the end
of the reporting period
• Decline in market value of investments between the end of the reporting
period and the date when the financial statements are authorised for
issue
• Announcing a plan to discontinue an operation
• Commencing major litigation arising solely out of events that occurred
after the end of the reporting period

Connolly – International Financial Accounting and Reporting – 4th Edition

Example 15.2: Non-adjusting events

Pinewood Limited is a furniture manufacturing company. The

company was informed on 1 February 2013 that one of its major
customers, Cushion Limited , had gone into liquidation. The
liquidator indicated that no payments would be made to
unsecured creditors. The amount owed by Cushion Limited on 1
February 2013 amounted to €55,000, of which €30,000 related
to goods invoiced on 10 December 2012 and €25,000 to goods
invoiced on 15 January 2013.
Requirement
Explain how the above item would be dealt with in the financial
statements of Pinewood Limited for the year ended 31
December 2012.

Connolly – International Financial Accounting and Reporting – 4th Edition

Example 15.2: Non-adjusting events

Solution

•As the liquidation occurred after the reporting date, it is dealt

with in accordance with IAS 10

•The liquidation is an adjusting event

•The amount of the adjustment in the 2012 financial statements
is limited to €30,000 (i.e. the amount outstanding at the
reporting date)

•If the additional amount of €25,000 is deemed to be material, it

should be disclosed by way of note

Connolly – International Financial Accounting and Reporting – 4th Edition

Going concern issues arising after the end of the reporting period

• An entity should not prepare its financial statements on a

going concern basis if management determines that after
the reporting period either:
 that it intends to liquidate the entity or to cease trading; or
 that it has not realistic alternative but to do so.

Connolly – International Financial Accounting and Reporting – 4th Edition

Proposed dividends

• Equity dividends declared after the end

of the reporting period are not a liability
as at the end of the reporting period.
These dividends should be disclosed in
a note to the financial statements as a
contingent liability

Connolly – International Financial Accounting and Reporting – 4th Edition

Proposed dividends

Adjusting event Non-adjusting event

Adjust financial Disclosure

statements only
Dividends proposed/declared after the end of the reporting
period do not meet the definition of a liability at the end of
the reporting period and should not be accrued in the FS

Dividends due from subsidiaries are not income in parent’s

individual accounts if declared after the end of the reporting
period

Connolly – International Financial Accounting and Reporting – 4th Edition

15.3 DISCLOSURE

• In addition to the disclosures mentioned previously for

non-adjusting events, the following must also be disclosed:
 Date of authorisation of the financial statements
 Who gave authorisation
 If the owners or others have the power to amend the
financial statements after issue, this must be disclosed

Connolly – International Financial Accounting and Reporting – 4th Edition