Non-adjusting events after the reporting date

Non-adjusting events after the reporting date – Those events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue. Two types of events can be identified:

  1. Those that provide evidence of conditions that existed at the reporting date (adjusting events after the reporting date); and
  2. Those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting date).

Identifying the key event

It is necessary to determine the underlying causes of an event and its timing to determine whether the event is adjusting or non-adjusting.

Non-adjusting events after the reporting date

Non-adjusting events

Financial statement amounts are not adjusted for events that are a result of conditions that arose after the reporting date (non-adjusting events). An exception is when events after the reporting date indicate that the financial statements should not be prepared on a going concern basis. [IAS 10 3, IAS 10 10, IAS 10 14]

The following is disclosed in respect of significant non-adjusting events: the nature of the event and an estimate of its financial effect, or a statement that an estimate cannot be made. [IAS 10 21]   Detailed information about business combinations effected after the reporting date is disclosed. [IFRS 3 59–60, IFRS 3 B64–B66]

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 statements to make proper evaluations and decisions, the enterprise 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 such non-adjusting but disclosure requiring events given in IAS 10 are (IAS 10 22):Events

  1. major business combinations or disposal of a major subsidiary;
  2. major purchase or disposal of assets, classification of assets as held for sale or expropriation of major assets by government; Non-adjusting events after the reporting date
  3. destruction of a major production plant by fire after reporting date
  4.  announcing a plan to discontinue operations; Non-adjusting events after the reporting date
  5. announcing a major restructuring after reporting date; Non-adjusting events after the reporting date
  6. major ordinary share transactions; Non-adjusting events after the reporting date
  7. abnormally large changes, after the reporting date. in asset prices or foreign exchange rates;
  8. changes in tax rates or tax law; Non-adjusting events after the reporting date
  9. entering into major commitments such as guarantees; Non-adjusting events after the reporting date
  10. commencing major litigation arising solely out of events that occurred after the reporting date. Non-adjusting events after the reporting date

Dividends

Cash dividends declared (i.e. the dividends are authorised and no longer at the discretion of the entity) after the reporting date are non-adjusting events that are not recognised as a liability in the financial statements, but are disclosed in the notes to the financial statements. This is because no obligation exists at the reporting date. [IAS 10 12–13, IAS 10 BC4]

Financial statements are not adjusted for a stock dividend declared after the reporting period but before the financial statements are authorized for issue. However, certain disclosures are required (IFRIC 17 17). Non-adjusting events after the reporting date

Current vs non-current classification

Generally, the classification of long-term debt as current or non-current reflects circumstances at the reporting date. Refinancings, amendments, waivers etc that are agreed after the reporting date are not considered in determining the classification of debt, but are disclosed as non-adjusting events if material. Non-adjusting events after the reporting date

However, if an entity expects, and has the discretion at the reporting date, to refinance or to reschedule payments on a long-term basis, then the debt is classified as non-current. [IAS 1 72–76]

Fair value of investments

As per above listing of non-adjusting events a decline in fair value of investments between the end of the reporting period and the date when the financial statements are authorised for issue. The decline in fair value does not relate to the condition of the investments at the reporting date, but reflects circumstances that have arisen after the reporting date.

Therefore, an entity does not adjust the amounts recognised in the financial statements. Disclosure is required based on the significance of the decline in fair value.

Going concern

Management makes an assessment of an entity’s ability to continue as a going concern, when preparing the entity’s financial statements. An entity prepares financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so (even if management did not determine this until after the reporting period). Non-adjusting events after the reporting date

If an entity’s financial statements are not prepared on the going concern basis, management discloses what basis of accounting is used, but the use of the liquidation basis is not required. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, the entity discloses those uncertainties. Non-adjusting events after the reporting date

The assessment period is at least one year from the financial statement date (balance sheet date) with no upper time limit (IAS 1 25 – 26 and IAS 10 14 – 16)

 


Adjusting events Non-adjusting events after the reporting date

The financial statements are adjusted to reflect events that occur after the reporting date but before the financial statements are authorised for issue, if those events provide evidence of conditions that existed at the reporting date (adjusting events) or if they indicate that the going concern basis of preparation is inappropriate. [IAS 10 3, IAS 10 8, IAS 10 14]

Material adjusting events require changes to the financial statements. Non-adjusting events after the reporting date

Examples of such events given in IAS 10 are: Non-adjusting events after the reporting date

  1. the resolution of a court case, as the result of which a provision has to be recognised instead of the disclosure by note of a contingent liability;
  2. evidence of impairment of assets: Non-adjusting events after the reporting date
    1. bankruptcy of a major customer; Non-adjusting events after the reporting date
    2. sale of inventories at prices Non-adjusting events after the reporting date

suggesting the need to reduce the balance sheet figure to the net value actually realised.

Recognition and measurement

Adjusting events

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.

Dividends

An entity shall not recognise those dividends that are declared after reporting date as a liability at the end of the reporting period.

Going concern

An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting date that either:

  1. it intends to liquidate the entity or to cease trading; or
  2. that it has no realistic alternative but to do so.

Reissuance of financial statements

Reissuance of financial statements is not specifically addressed. The only date that is recognized as the date through which events after the reporting date are evaluated is the date at which the financial statements are authorized for issuance (even if the financial statements are being reissued). Non-adjusting events after the reporting date

Refinancing of short-term loans

Short-term loans refinanced after the reporting period may not be classified as long-term. Non-adjusting events after the reporting date

Presentation and disclosure

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 Notes to the financial statement:
  1. 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.
  2. 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.
  3. 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.
  4. 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:
    1. the nature of the event; and
    2. an estimate of its financial effect, or a statement that such an estimate cannot be made.

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Non-adjusting events after the reporting date

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