Disclosure issues: Events after the Reporting Period

Question 1

AASB 110 (Events after reporting period) Definitions

Answer 1

Events, favourable and unfavourable, that occur between end of reporting period (typically 30 June) and date when FS are authorised for issue (when directors sign off, typically late Aug/early Sept)

Two types of event:
a) those that provide evidence of conditions that existed at reporting period (adjusting events)

b) those indicative of conditions that arose after reporting period (non-adjusting events)

Question 2

Adjusting Events after the reporting period

Answer 2

Para 8: Entity SHALL adjust amounts recognised in FS to reflect adjusting events after reporting period.

Rationale: IS & BS should reflect conditions that existed at reporting date–these events occurred during reporting period –> need to make a retrospective change in FS to reflect that

Examples:

• Settlement of court case: contingent liability at reporting date change to liability
• Confirmation of bad debt
• Sale of inventory below cost
• Discovery of fraud/errors

Question 3

Non-Adjusting Events after reporting period

Answer 3

Para 10: Entity shall NOT adjust amounts in FS to reflect non-adjusting events after reporting period

Rationale: non-adjusting events did not occur during reporting period –> not recognised
– para 21: instead, if events are material, disclose in notes

Examples:

• Major business combinations/subsidiary disposals
• Announcement of plans to discontinue operation
• Major asset acq or disposal
• Major restructuring announcement/commencements
• Major share transactions

Question 4

Para 12 Dividends

Answer 4

Specific instance addressed in AASB 110
- If an entity DECLARES dividends after the reporting date, entity shall NOT recognise dividends as liability at reporting date (Non-adjusting event)

• Not talking about interim div but final div declared, not paid

Question 5

Para 14 Going Concern

Answer 5

• An entity shall NOT prepare its FS on going concern basis if mgt determines after reporting period either that it intends to liquidate the entity or to cease trading, OR that it has no realistic alternative but to do so (e.g. natural disaster): Adjusting Event
• E.g. normally have to value assets at cost, but if company going to liquidate then need to value asset at realisable cost now