Objective: IAS 10 prescribes when an entity should adjust its financial statements for events after the reporting period and the disclosures required.
- Applies to all entities preparing financial statements
- Defines the period after the reporting period
- Distinguishes between adjusting and non-adjusting events
- Specifies when an entity should not prepare its financial statements on a going concern basis
Events After the Reporting Period: Those events, both favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue.
Adjusting Events: Events after the reporting period that provide evidence of conditions that existed at the end of the reporting period.
Non-Adjusting Events: Events after the reporting period that are indicative of conditions that arose after the reporting period.
An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events after the reporting period.
| Event | Accounting Treatment |
|---|---|
| Bankruptcy of a customer | Adjust allowance for doubtful accounts |
| Determination of purchase/sale price | Adjust asset values or provisions |
| Discovery of fraud/errors | Show that financial statements were incorrect |
Note: Adjusting events require changes to amounts recognized in the financial statements.
Company's year-end: December 31, 2023
Major customer declares bankruptcy on January 15, 2024
Financial statements authorized for issue: February 20, 2024
→ This is an adjusting event if the customer's financial condition had deteriorated before year-end.
An entity shall not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the reporting period.
- Decline in market value of investments
- Announcement of a plan to discontinue an operation
- Major purchases and disposals of assets
- Destruction of a major production plant by fire
- Commencement of major litigation arising solely from events after the reporting period
If dividends are declared after the reporting period but before authorization of financial statements, they are not recognized as a liability at the end of the reporting period.
Such dividends must be disclosed in the notes to the financial statements.
| Situation | Accounting Treatment |
|---|---|
| Going concern inappropriate | Financial statements should not be prepared on a going concern basis |
| Management intends to liquidate/cease trading | Financial statements may not be prepared on a going concern basis |
Important: If management determines after the reporting period that the going concern assumption is no longer appropriate, that is a non-adjusting event requiring disclosure.
- The date when financial statements were authorized for issue and who gave that authorization
- If owners or others have the power to amend the financial statements after issuance, that fact should be disclosed
- For each material category of non-adjusting event:
- The nature of the event
- An estimate of its financial effect, or a statement that such an estimate cannot be made
- Update disclosures that relate to conditions that existed at the end of the reporting period
- Dividends declared after the reporting period
Event: On 15 May 2015, a competitor developed an alternative component making Delta's inventory obsolete
Inventory Details: Cost $10 million, Original NRV $12 million, Revised NRV $2 million
Accounting Treatment: Non-adjusting event - must disclose the after-date obsolescence and its financial implications
Events:
- Legal case settled on 20 October 20X5 for $5 million (original estimate was $5 million) → Adjusting event
- Factory fire on 15 October 20X5 causing $5 million damage → Non-adjusting event
- Customer insolvency on 20 November 20X5 (after authorization) → Not reportable
Events:
- Legal case settled on 20 October 20X5 for $560,000 (original estimate $500,000) → Adjusting event
- Factory fire on 11 October 20X5 causing $2 million damage → Non-adjusting event
- Competitor product launch on 10 November 20X5 → Not an event after the reporting date
Summary
Adjusting Events
Provide evidence of conditions that existed at the reporting date. The financial statements must be adjusted.
Example: Confirmation of a receivable balance that was pending at year-end.
Non-Adjusting Events
Indicate conditions that arose after the reporting date. They are not adjusted for, but may require disclosure.
Exception: If they cast doubt on the company's going concern assumption.
Example: Major fire after year-end.
Events After Authorization for Issue
Events occurring after the financial statements are authorized for issue are not adjusted for and may only require disclosure if material.
Going Concern Exception
If events after the reporting period cast doubt on the entity's ability to continue as a going concern, this must be disclosed & adjusted regardless of whether the events are adjusting or non-adjusting.