Events after the Reporting Period

Question 1

What led to introduction of a standard on post-balance sheet events?

Answer 1

Conflict between matching and prudence, if matching concept applied financial stamens should reflect events that offer greater clarity of conditions that existed at balance sheet date, window dressing, and prudence might suggest going further: any event affecting assets/liabilities even if it related to conditions arising after balance sheet date

Question 2

What are events after the balance sheet (SOFP) date?

Answer 2

Those events, both favourable and unfavourable, that occur between the balance sheet date and date on which financial statements are authorised for issue (date financial statements authorised for issue must be disclosed and who gave the authorisation)

Question 3

What are the two different types of events after the reporting period?

Answer 3

Adjusting or non-adjusting events

Question 4

What are adjusting events?

Answer 4

Events after the balance sheet date which provide evidence of conditions that existed at the balance sheet date (SOFP)

Question 5

What are examples of adjusting events?

Answer 5

Sale of stock/inventory after balance sheet date showing that estimate of net realisable value was incorrect at balance sheet date, a trade debtor (receivable) going into liquidation, and a subsequent valuation of property which indicates a permanent fall in value of asset at balance sheet date

Question 6

What is a non-adjusting event?

Answer 6

Events after the balance sheet that are indicative of conditions that arose after the balance sheet date

Question 7

What are examples of non-adjusting events?

Answer 7

Issue of shares/debentures, loss of non-current asset due to catastrophe/flood, and changes in foreign exchange rate

Question 8

What must be done when an adjusting event occurs?

Answer 8

Adjust financial statements and update relevant disclosures

Question 9

What must be done when a non-adjusting event occurs?

Answer 9

Don’t adjust financial statements, but if it is a material non-adjusting event disclose nature of the event, an estimate of its financial effect or a statement such an estimate cannot be made

Question 10

What happens if an entity declares dividend to shareholders after the balance sheet date?

Answer 10

The entity shall not recognise those dividends as a liability at the balance sheet date

Question 11

What happens if the dividend is declared between balance sheet date and date financial statements authorised for issue?

Answer 11

Dividend should be disclosed in the notes to the financial statements

Question 12

When should an entity not prepare its financial statements on a going concern basis?

Answer 12

If management determines after the balance sheet date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so