IAS 10: EVENTS AFTER THE REPORTING DATE

OBJECTIVE

The objective of this Standard is to prescribe:

(a) When an entity should adjust its financial statements for events after the reporting period;

(b) The disclosures that an entity should give about the date when the financial statements were
approved for issue and about events after the reporting period.

(c) The Standard also requires that an entity should not prepare its financial statements on a
going concern basis if events after the reporting period indicate that the going concern
assumption is not appropriate.

SCOPE

This Standard shall be applied in the accounting for, and disclosure of, events after the reporting
period.

DEFINITIONS

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 approved and authorised for issue by the
Board of Directors in case of a company, and, by the corresponding approving authority in case
of any other entity for issue.

Adjusting events
Are events after the reporting date that provide additional evidence of conditions existing at the
reporting date

Non-adjusting events
Are events after the reporting date that concern conditions that arose after the reporting date.
These are events that are indicative of conditions that arose after the reporting period

RECOGNITION AND MEASUREMENT

(i) Adjusting events after the reporting period

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting
events after the reporting period.

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Examples of Adjusting Events
The following are examples of adjusting events after the reporting period that require an entity to
adjust the amounts recognised in its financial statements, or to recognise items that were not
previously recognised:

 irrecoverable debts arising after the reporting date, which may help to quantify the
allowance for receivables as at the reporting date

 sale of inventory below cost, providing evidence of net realisable value

 amounts received or receivable in respect of insurance claims which were being

negotiated at the reporting date

 the discovery of fraud or errors that show that the financial statements are incorrect

 the determination after the reporting period of the cost of assets purchased, or the
proceeds from assets sold, before the end of the reporting period

 the bankruptcy of a customer that occurs after the reporting period usually confirms that
the customer was credit impaired at the end of the reporting period

 the settlement after the reporting period of a court case that confirms that the entity had a
present obligation at the end of the reporting period(IAS 17-Provisions, Contingent
Liabilities and Contingent Assets)

 the determination after the reporting period of the amount of profit-sharing or bonus
payments, if the entity had a present legal or constructive obligation at the end of the
reporting period to make such payments as a result of events before that date (IAS 19-
Employee Benefits

(ii) Non-Adjusting Events after the reporting date

An entity should not adjust the amounts recognized in the financial
statements to reflect non-adjusting events after the reporting period.
Non-adjusting events do not, by definition, require an adjustment to the
financial statements, but if they are of such importance that non-disclosure
would affect the ability of users of the financial to make proper evaluations
and decisions, the entity should disclose by note:

 the nature of the event;

 an estimate of its financial effect, or a statement that such an estimate
cannot be made.

Examples of Adjusting Events;

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(a) Decline in market value of investments;
(b) Announcement of a plan to discontinue an operation or entering into
binding agreements to sell.
(c) Major purchases and disposals of assets;
(d) Expropriation of major assets by government;
(e) Destruction of a major production plant by fire etc;
(f) A major business combination/disposal after the reporting period;
(g) Sale of a major subsidiary;
(h) Major dealings in the company‘s ordinary shares;
(i) Abnormally large changes in asset prices or foreign exchange rates;
(j) Changes in tax rates with a significant effect on current and deferred tax
assets;
(k) Entering into significant commitments or contingent liabilities;
(l) Commencing major litigation arising solely out of events that have
occurred after the reporting period
(m) The announcement or commencing of a major restructuring.

ACCOUNTING TREATMENT

(i) Adjusting Events

IAS 10 requires that an entity takes one or more of the following steps to reflect the effect of
these events (adjusting events after the reporting period) in the financial statement:
 adjust the amounts recognised in its financial statements
 recognise items that were not previously recognised
 update the disclosures in its financial report

Adjust financial statements for adjusting events. These are events after the
reporting period that provide further evidence of conditions that existed at
the end of the reporting period, including events that indicate that the going
concern assumption in relation to the whole or part of the entity is not
appropriate.

(ii) Non-Adjusting Events

IAS 10 prohibits adjustments to the amounts recognised in the financial
statements or updates to the disclosures as at the reporting date. 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; and
(b) An estimate of its financial effect, or a statement that such an estimate
cannot be made.

It is also important to remember that non-adjusting events do not alter the amounts in the
statement of financial position (the balance sheet) or statement of comprehensive income

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(income statement), but if the event(s) is/are considered significant, then disclosure by way of
note to the financial statements should be made.

Do not adjust for non-adjusting events only disclose if significant.

Going Concern
IAS 10 also includes a requirement that an entity should not prepare its
financial statements on a going concern basis if events after the reporting
period indicate that it is no longer appropriate.

IAS 10 prohibits entities from preparing financial statements on a going

concern basis when management determines after the reporting date either
that it intends to liquidate the entity or to cease trading, or that it has no
realistic alternative but to do so.

Where the going concern assumption is considered inappropriate due to non-

adjusting events, the
entity shall present financial statements which are not prepared on a going
concern basis. If an event after the reporting date indicates that the going concern assumption
is inappropriate for the entity, then the statement of financial position should be prepared on a
break-up basis. The fact shall be disclosed. IAS 1 outlines the required disclosure
in such cases.

Proposed Dividends
Dividends declared after the reporting date but before the date when the financial statements are
authorised for issue, cannot be recognised as a liability in the financial statements as at reporting
date because the dividends do not meet the criteria of a present obligation in IAS 37. That is a
non-adjusting event. They are disclosed in the notes in accordance with IAS 1.We account for
dividends on a cash basis so they are non-adjusting events after the reporting date and must be
disclosed by note as required by IAS 1.

The liability to pay a dividend shall be recognised when the dividend is appropriately authorised
and is no longer at the discretion of the entity, which is the date when declaration of the
dividend, e.g by management or the board of directors, is approved by the relevant authority, e.g
the shareholders, if the jurisdiction requires such approval, or when the dividend is declared, e.g
by management or the board of directors, if the jurisdiction does not require further approval.

An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at the
fair value of the assets to be distributed.

If an entity gives its owners a choice of receiving either a non-cash asset or a cash alternative, the
entity shall estimate the dividend payable by considering both the fair value of each alternative
and the associated probability of owners selecting each alternative

DISCLOSURES

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An entity shall disclose the date when the financial statements were approved for issue and who
gave that approval. If the entity’s owners or others have the power to amend the financial
statements after issue, the entity shall disclose that fact.

It is important for users to know when the financial statements were approved for issue, because
the financial statements do not reflect events after this date.

Updating disclosure about conditions at the end of the reporting period

If an entity receives information after the reporting period about conditions that existed at the
end of the reporting period, it shall update disclosures that relate to those conditions, in the light
of the new information.
In some cases, an entity needs to update the disclosures in its financial statements to reflect
information received after the reporting period, even when the information does not affect the
amounts that it recognises in its financial statements. One example of the need to update
disclosures is when evidence becomes available after the reporting period about a contingent
liability that existed at the end of the reporting period.

Non-adjusting events after the reporting period

If non-adjusting events after the reporting period are material, non-disclosure could reasonably
be expected to influence decisions that the primary users of general purpose financial statements
make on the basis of those financial statements, which provide financial information about a
specific reporting entity. 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; and

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

The following are examples of non-adjusting events after the reporting period that would
generally result in disclosure:

 a major business combination after the reporting period IFRS 3, Business

Combinations, requires specific disclosures in such cases) or disposing of a major
subsidiary;

 announcing a plan to discontinue an operation;

 major purchases of assets, classification of assets as held for sale in accordance with
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, other
disposals of assets, or expropriation of major assets by government

 the destruction of a major production plant by a fire after the reporting period;

 announcing, or commencing the implementation of, a major restructuring (IAS 37);

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  major ordinary share transactions and potential ordinary share transactions after the
reporting period (IAS 33, Earnings per Share, requires an entity to disclose a
description of such transactions, other than when such transactions involve capitalisation
or bonus issues, share splits or reverse share splits all of which are required to be adjusted
under IAS 33;

 abnormally large changes after the reporting period in asset prices or foreign exchange
rates;

 changes in tax rates or tax laws enacted or announced after the reporting period that have
a significant effect on current and deferred tax assets and liabilities (IAS 12, Income
Taxes);

 entering into significant commitments or contingent liabilities, for example, by issuing

significant guarantees; and

 commencing major litigation arising solely out of events that occurred after the reporting
period.

Example 1 – Events after the reporting date

Shortly after the reporting date a major credit customer of an entity went into liquidation because
of heavy trading losses and it is expected that little or none of the $12,500 debt will be
recoverable. $10,000 of the debt relates to sales made prior to the year-end and $2,500 relates to
sales made in the first two days of the new financial year.
In the 20X1 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 20X2 financial statements.
Required:
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.
$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 20X1 financial statements.

The remaining receivable did not exist at the reporting date and should therefore be written off in
the 20X2 financial statements.

Example 2
Anderson's year end is 31 December 20X7. The following events all occurred in January 20X8.

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State whether the events below would be classed as adjusting or non-adjusting events.

EVENT ADJUSTING NON-ADJUSTING

Insolvency of a customer
Loss of inventory due to a
flood
Completion of purchase of
another company
Evidence showing that the net
realisable value of inventory is
below cost
A court case from August is
settled by Anderson
The discovery of a fraud
showing the financial
statements were incorrect
Solution

PRACTICE QUESTIONS

QUESTION 1

a) Mushroom Foods Ltd received a letter from Regional Liquidators on 15 January 2017, stating
that Big Bream Fish Shop has been placed into liquidation owing to trading difficulties and that
all creditors could expect to receive a liquidation dividend of no more than $0.15 in $1.00. Big
Bream Fish Shop owed Mushroom Foods Ltd $306 000 at 31 December 2016. The financial
statements for the year ended 31 December 2016 were approved on 15 March 2017.

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Required
Identify, giving reasons, what type of event this information would be classified as in terms of
IAS 10: Events after reporting period. (10)

b) The following are independent case:

i. Mbabane Ltd holds a provision at reporting date for the likely costs associated with a legal
claim. Between the reporting date and the date financial statements are authorised, the claim is
settled.

ii. Between the reporting date and the formal authorization of financial statements, Pigg's Peek
Ltd receive notification of a claim against the by an employee who was injured in an accident
after the reporting date.

iii. Mutare Ltd has a reporting date of 31December 2016, and the financial statements will be
authorised by the directors on 1 March. On 1 March 2017, the company sells one of its factories
$250 000 less than the carrying amount at 31 December 2016. The financial statements are sent
to shareholders on 1 April 2017.

iv. Subsequent to the year-end Cross Border Holdings Ltd sold a subsidiary where the sales
consideration was significantly lower than the carrying amount of the net identifiable assets of
the subsidiary at year-end. No individual asset in the subsidiary sold seems impaired

Required
In terms of IAS 10: Events after the reporting period, what is the accounting treatment of each of
the above independent cases. (10)

QUESTION 2

a. What are events after reporting date in terms of IAS10 (6)

b. According to the requirements of IAS 10, what is the accounting treatment of adjusting and
non- adjusting events? (4)

c. In terms of IAS 10, what is the significance of

i. Dividends declared after reporting date? (5)

ii. Going concern assumption (6)

d. The reporting date of Vicky Ltd is 31 December 2018 and the financial statements are
authorised for issue on 30 March 2019. On 5 January 2019 the employees of Vicky Ltd found
rock formations on one of the company's construction projects that would delay construction to
such an extent that additional costs of $375 000 would be incurred.

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Required
How should the additional cost of $375 000 be accounted for in the books of Vicky Ltd in terms
of IAS10? (4)

QUESTION 3

The financial statements of White Ltd for the year ended 31 December 2021 were presented to
the board of directors for authorisation for issue on 25 March 2022. You are the accountant of
the company and the following events occurred after the reporting date.

(i) Owing to the current economic recession and to increased competition, the selling price of
White Ltd’s main product was considerably reduced on 20 February 2022. The lower selling
price will cause a 20% decrease in gross profit in respect of the main product. It is estimated that
total comprehensive income for the year ended 31 December 2022 will decrease by $600 000
before tax.

(ii) The board of directors decided to declare $60 000 additional ordinary dividends on 25
February 2022. The dividends will be paid 10 April 2022.

(iii) Dube, a debtor, sent a letter to all her creditors on 20 March 2022 stating that she was
terminating business owing to financial difficulties. She suggested an offer of compromise of 25
cents in the dollar. A statement of assets and liabilities supported by an auditor’s certificate was
attached. The amount owing by Dube to White Ltd amounted to $30 000 and is included in
receivables at the reporting date. (Assume that the transactions were in the normal course of
business)

(iv) During February 2022, a fire broke out in a warehouse and inventory amounting to $80 000
was destroyed. White Ltd was not insured. Assume that the loss resulting from the fire damage
will be deductible for tax purposes.

(v) On 18 January 2022, a customer sued White Ltd for failing to meet specifications on certain
goods supplied. The case was taken to court and judgement has not yet been passed. The
attorneys of White Ltd notified the financial director that the company will probably lose the
case and that costs and compensation (which are tax deductible) will be approximately $200 000.
The inventory was delivered during 2021.

(vi) The research department of White Ltd developed a product during November 2021 which
will make an exceptional contribution to profits in future.
Normal tax rate of 24% and ignore all other taxes

(a) Discuss in each case whether an adjusting or non-adjusting event took place (6 marks)

(b) Briefly discuss the effect of the event on the financial statements (12 marks)

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(c) Provide an extract of the financial statements of White Ltd as at 31 December disclosing the
details in (b) above so as to comply with the requirements of International Financial Reporting
Standards (IFRS)

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