When should a reporting entity recognise events after the reporting period in the financial statements that are being finalised?
What are the disclosures that should be given about the date when the financial statements were authorised for issue and about the events after the reporting date?
The answers look a bit colorful but are spot on and short……
The three important terms were it is all about are:
- 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 authorised for issue.
- Adjusting events are events occurring after the reporting date that provide evidence of conditions that existed at the end of the reporting period.
|Examples of adjusting events include:|
- events that indicate that the going concern assumption in relation to the whole or part of the entity is not appropriate;
- settlements after reporting date of court cases that confirm the entity had a present obligation at reporting date;
- receipt of information after reporting date indicating that an asset was impaired at reporting date;
- bankruptcy of a customerthat occurs after reporting date that confirms a loss existed at reporting date on trade receivables;
- sales of inventory after reporting date that give evidence about their net realisable value at reporting date;
- discovery of fraud or errors that show the financial statements are incorrect.
- Non-adjusting events are events occurring after the reporting date that do NOT provide evidence of conditions that existed at the end of the reporting period.
Examples of non-adjusting events, that would generally result in disclosure, include:
major business combinations or disposal of a major subsidiary;
major purchase or disposal of assets, classificationof assets as held for sale or expropriation of major assets by government;
destruction of a major production plant by fire after reporting date;
announcing a plan to discontinue operations;
announcing a major restructuringafter reporting date;
major ordinary share transactions;
abnormally large changes, after the reporting date. in asset prices or foreign exchange rates;
changes in tax rates or tax law;
entering into major commitments such as guarantees;
commencing major litigation arising solely out of events that occurred after the reporting date.
Recognition and measurement
An entity shall adjust the amounts recognised in its financial statements and/or relevant disclosures to reflect such events.
Non – adjusting events
An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period.
An entity shall not recognise those dividendsthat are declared after reporting date as a liabilityat the end of the reporting period.
An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting date that either:
it intends to liquidate the entity or to cease trading; or
that it has no realistic alternative but to do so.
Presentation and disclosures
An entity shall present and disclose information that enables users of the financial statements to evaluate the effects of events after reporting period:
In the Notesto the financial statements:
- An entity shall disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the entity’s owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact.
- 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 additional 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.
- If non-adjusting events after the reporting period are material, non-disclosure could influence the economic decisions that users make 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:
- the nature of the event; and
- an estimate of its financial effect, or a statement that such an estimate cannot be made.