IAS 10- EVENT AFTER THE REPORTING PERIOD

IAS 10- EVENT AFTER THE REPORTING PERIOD

The standard was previously named ‘Event after the Balance sheet date’, but retitled to Event after the reporting period resulting from revision to IAS 1.

      IAS 10 contains the requirement for dealing with events that occurs after the reporting period. There are some terms we need to know before going in-depth into the requirements of the standard.

•      Reporting period: This refers to the period to which the financial statements of an entity relate. It usually span across a period of 12-month, e.g Jan 1 20x5  - Dec 31, 20x5. 
•     Event after the reporting period: This is an event, whether favourable or unfavourable that occurs between the end of the reporting period and the date the financial statements are authorised for issue. From this definition, it is evident that the events under the scope of this standard are not limited to unfavourable events, but also include favourable events. The definition further specifies a cut-off date in which those events should be considered up to, i.e. the event after the reporting period dealt with under this standard are those that occur strictly in between the end of the reporting period and a cut-off date (Authorisation date).

• Authorisation Date: This is the date which the financial statement has been authorised for issue by the Board of directors/Management.

Even with the aforementioned, why worry ourselves about the events that occur after a particular reporting period? Shouldn’t those events be treated as part of the reporting in which it occurred, since another reporting period commences after the end of one reporting period?

 Let’s go a little further into the contents of the standard if we can get a clue to the above questions.

The standard IAS 10 proffers two types of “event after the reporting period”, which are:

1.     Adjusting Event
2. Non-adjusting Event   

a.      Adjusting Event: This is an event after the reporting period that provides evidence of a condition that existed at the end of the reporting period. In other words, those events occurring between the end of the reporting period and the authorisation that gives evidence of condition that existed at the end of the reporting period. Examples include:

·         Bankruptcy of a customer that occurs after the reporting period. The bankruptcy (Event) provides evidence that a loss (condition) regarding the amount owed by the customer existed at the end of the reporting period.

·         Sale of inventory after the reporting period: The sale (event) may give evidence about the inventory’s net realisable value (since this is chiefly based on estimate) at the end of the reporting period.

·         The settlement after the reporting period of an existing court case. The settlement (Event) gives confirmation that the entity had a present obligation (Condition) at the end of the reporting period.

·         The discovery of fraud or errors after the reporting period. The discovery (event) gives evidence of the incorrectness (conditions) of the financial statement at the end of the reporting period.

b.      Non-adjusting Event: An event after the reporting period that is indicative (a sign) of conditions that arose after the reporting period. Examples include:

·         The destruction of a major production plant by fire after the reporting period. The loss that occurred is indicative of the condition that arose after the reporting period (occurrence of fire).

·         Decline in market value between the end of the reporting period and the date when the financial statement are authorised for issue. Although this may be similar to example number two under Adjusting event, but the decline in the market value has really not given confirmation, until an actual sale occurs. In addition, the decline relates to conditions that arose after the reporting period.

·         Announcing a plan to discontinue an operation: The potential discontinuance (event) is indicative of the announcement to discontinue it.   

STANCE: HOW DOES THE STANDARD WANTS THESE TWO TYPES OF EVENT TREATED WHEN THEY OCCUR?

ACCOUNTING TREATMENT

1.      Adjusting Event: when an event after the reporting period occurs, i.e. in between the end of the reporting period and authorisation date, the effect of the event should be incorporated (recognised) in the financial statement of the reporting period that just ended.

2.      Non-adjusting Event: An event which is non-adjusting shall not have its effect recognised in the just ended reporting period. It should be disclosed if material.

OTHERS

DIVIDENDS
Dividends for period proposed/declared after the end of the reporting period but before Financial statements are approved should not be recognised as a liability at the end of the reporting period. In addition, IAS 1 only requires the recognition of dividend paid during the reporting period.
 
GOING CONCERN
If the going concern assumption is no longer appropriate, the effect is so pervasive that this
Standard requires a fundamental change in the basis of accounting, rather than an
adjustment to the amounts recognised within the original basis of accounting.