There may be certain events which arise between the end of the reporting period and the date when financial statements are authorised for issue. Since they may present information that must be assessed in preparation of financial statements, IAS 10 was administered to deal with such cases. IAS 10 states when an entity should modify its financial statements for the events after the reporting period.
It also prescribes the disclosures that a company has to go give about the date when the financial statements were authorized for issue and about events after the reporting period.
IAS 10 offers direction for the accounting treatment of such events which take place after the reporting period but before the date of authorization of final statements. Plus, these events can be favourable or unfavourable. International Accounting Standard 10 events after the reporting period provide a set of rules which defines both adjusting and non-adjusting events.
Date of Authorization for Issue
The Standard proposes that an entity must not prepare its financial statements on a going concern basis if events after the reporting period demonstrate that the going concern assumption is not relevant. Events that take place after the reporting period are those which occur between the end of the reporting period and when financial statements are authorized for issue.
The date when the board of directors approve the issue of the financial statement is usually considered as the date of authorization for the issue. If the management is required to issue its financial statements to a board or shareholders for their acceptance, the specific authorization is supposed to be complete upon the management’s authorization for the issue of financial statements.
This is better rather than when the supervisor’s board or shareholders give their consent.
Moreover, the entities should disclose the date when the financial statements were authorised for issue and also who gave that authorisation. If there is a possibility that the financial statements may be amended at a later date then the entity should positively disclose this fact too.
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The events that occur after the end of the reporting period which provides further evidence of conditions that prevailed at the end of the reporting period, also known as adjusting events then the financial statements have to be modified accordingly.
Here are some examples of adjusting events:
- Consider a settlement of litigation against the entity after the reporting date, in regard of events that have already happened before the end of reporting period. This may contribute evidence of the existence and amount of liability at the reporting date. Liability of the litigation may be documented in the financial statements if it is not recognized originally or even the amount of liability can be revised.
- Declaration of bankruptcy by a long receivable after the reporting date may deliver proof that the receivable was impaired at the reporting date. However, impairment can be acknowledged in the financial statements by decreasing the amount of receivable to its recoverable amount, in case if there is any.
- Detection of frauds or errors after the reporting period can imply that the financial statements are misrepresented. In this case, the financial statements may be modified to examine accounting for those errors that are relevant to the current or prior reporting periods.
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In the possibility of non-adjusting events, the entity must not adjust the financial statements in respect of those events after the end of the reporting period that indicates situations that took place after the end of the reporting period.
Here are some examples of non-adjusting events:
- The announcement of dividends after the reporting date does not indicate the validity of liability to pay dividends at the reporting date. Plus, it shall not provoke the recognition of liability in financial statements which are by IAS 37 Provisions.
- If floods cause destruction of the assets of an entity after the reporting period then it does not reflect that the assets of the entity were impaired at the end of reporting period. Therefore, in such a case, the financial statements must not be modified to account for the impairment loss that took place after the end of the reporting period.
- Initiation of litigation against any company originating out of events that happened after the reporting period does not demonstrate the existence of liability at the reporting date. It shall not arouse the recognition of liability in the financial statements by IAS 37 Provisions.
Moreover, the nature of the financial impact of material non-adjusting events must be disclosed in the financial statements.
For non-adjusting events to be considered as material, they shall impact the economic as well as the financial decisions of the users of the financial statements.
Some examples of material non-adjusting events are as follows:
- The strategy of the management to terminate or curtail its activities in crucial geographic regions.
- Initiation of important litigation against the company originating out of events that took place after the reporting period.
- Losses suffered as an outcome of a natural calamity occurring after the end of the reporting period.
- Business combinations or disposal of subsidiaries, purchases and disposal of assets, classification of assets as held for sales of operations, restructurings, declaration of dividends, changes in law enacted or announced after the reporting period and entering into significant commitments or contingent liabilities are all examples of material non-adjusting events according to IAS 10.
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The judgment of whether the going concern assumption is relevant needs to be evaluated by each entity. However, the assessment of going concerned is of more applicability for individual entities rather than for a government.
An entity must not prepare its financial statements on a going concern basis if those accountable for the preparation of the financial statements determine after the reporting date either that there is an intention to liquidate the entity or to terminate operating or that there is no rational alternative but to do so.
To evaluate whether the going concern assumption is appropriate for an individual entity, those responsible for this must consider a wide range of factors. The factors include the existing and anticipated performance of the entity, any announced and probable restructuring of organizational units and if vital, potential sources of replacement funding.
For entities whose procedures are budget funded, going concern issues arise only if the government declares its intention to cease funding the entity. Also, if the going concern is no longer relevant then this Standard needs to be reflected in the financial statements of an entity. The influence of this change depends upon the circumstances of any entity.
An entity which organizes and presents financial statements under the basis of accounting shall apply this standard in the accounting for, and disclosure of, events after the reporting date.
Moreover, the Standard applies to all public sector entities, Government enterprises are exceptions. Also, IAS 10 prescribes that in the events after the reporting period, entities are required to distinguish between subsequent events IFRS that are adjusting and those which are non-adjusting.
IAS 10 contains requirements and guidance for the times when events occur between the end of the reporting period and date when final statements were authorized. These should be modified in the financial statements.
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