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Conceptual Framework > IAS 10 : Events After Reporting Period > Flashcards

IAS 10 : Events After Reporting Period Flashcards

1
Q

IAS 10 – Events after the Reporting Period – deals with accounting for, and disclosure of: ‘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’.
[IAS 10.2, 3].

A

IAS 10 – Events after the Reporting Period – deals with accounting for, and disclosure of: ‘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’.
[IAS 10.2, 3].

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2
Q

This definition, therefore, includes all events occurring between those dates – irrespective of whether they relate to conditions that existed at the end of the reporting period. The principal issue is determining which events after the reporting period to reflect in the financial statements as adjustments or by providing additional disclosure.

A

This definition, therefore, includes all events occurring between those dates – irrespective of whether they relate to conditions that existed at the end of the reporting period. The principal issue is determining which events after the reporting period to reflect in the financial statements as adjustments or by providing additional disclosure.

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3
Q

The following timeline illustrates events after the end of the reporting period that are within the scope of IAS 10 for an entity with a 31 December year-end:

Screenshot pic on OneNote

A

The following timeline illustrates events after the end of the reporting period that are within the scope of IAS 10 for an entity with a 31 December year-end:

Screenshot pic on OneNote

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4
Q

The financial statements of an entity present, among other things, its financial position at the end of the reporting period. Therefore, it is appropriate to adjust the financial statements for all events that offer greater clarity concerning the conditions that existed at
the end of the reporting period, that occur prior to the date the financial statements are authorised for issue.

A

The financial statements of an entity present, among other things, its financial position at the end of the reporting period. Therefore, it is appropriate to adjust the financial statements for all events that offer greater clarity concerning the conditions that existed at
the end of the reporting period, that occur prior to the date the financial statements are authorised for issue.

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5
Q

The standard requires entities to adjust the amounts recognised in the financial statements for ‘adjusting events’ that provide evidence of conditions that existed at the end of the reporting period.
[IAS 10.3(a), 8]. An entity does not recognised in the financial statements those events that relate to conditions that arose after the reporting period (‘non adjusting events’).

A

The standard requires entities to adjust the amounts recognised in the financial statements for ‘adjusting events’ that provide evidence of conditions that existed at the end of the reporting period.
[IAS 10.3(a), 8]. An entity does not recognised in the financial statements those events that relate to conditions that arose after the reporting period (‘non adjusting events’).

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6
Q

However, if non-adjusting events are material (that is, non-disclosure of the event could influence the economic decisions that users make on the basis of the financial statements), the standard requires certain disclosures about them. [IAS 10.3(b), 10, 21].

One exception to the general rule of the standard for non-adjusting events is when the going concern basis becomes inappropriate. This is treated as an adjusting event. [IAS 10.1, 14].

A

However, if non-adjusting events are material (that is, non-disclosure of the event could influence the economic decisions that users make on the basis of the financial statements), the standard requires certain disclosures about them. [IAS 10.3(b), 10, 21].

One exception to the general rule of the standard for non-adjusting events is when the going concern basis becomes inappropriate. This is treated as an adjusting event. [IAS 10.1, 14].

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7
Q

IAS 10 concerns information that becomes known after the reporting period that clarifies uncertainties that existed at the end of the reporting period, or that originated after the reporting period. Events after the reporting period can assist us in the appropriate accounting treatment of uncertain events that existed at the end of the reporting period, because the events after the reporting period provide us with hindsight.

A

IAS 10 concerns information that becomes known after the reporting period that clarifies uncertainties that existed at the end of the reporting period, or that originated after the reporting period. Events after the reporting period can assist us in the appropriate accounting treatment of uncertain events that existed at the end of the reporting period, because the events after the reporting period provide us with hindsight.

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8
Q

Illustration 1

Suppose that the financial position of a material debtor of AB Ltd is uncertain at the end of the reporting period as a result of the debtor’s deteriorating financial position. Because the uncertainty existed at the end of the reporting period, the principles of impairment in
respect of financial instruments carried at amortised cost should be applied when deciding on the appropriate accounting treatment. An allowance for expected credit losses (not a provision in terms of IAS 37, but an allowance for impairment) for the amount of the loss that AB Ltd is likely to suffer will probably be created at the end of the reporting period.

A

Suppose that the financial position of a material debtor of AB Ltd is uncertain at the end of the reporting period as a result of the debtor’s deteriorating financial position. Because the uncertainty existed at the end of the reporting period, the principles of impairment in
respect of financial instruments carried at amortised cost should be applied when deciding on the appropriate accounting treatment. An allowance for expected credit losses (not a provision in terms of IAS 37, but an allowance for impairment) for the amount of the loss that AB Ltd is likely to suffer will probably be created at the end of the reporting period.

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9
Q

Illustration 1

Suppose, however, that the debtor is indeed declared insolvent before the annual financial statements are finalised and it becomes apparent that AB Ltd will lose the full amount owed by the debtor. This knowledge already allows AB Ltd to write the full amount off at
reporting date. The event after the reporting period, i.e. the insolvency of the debtor, clarifies the uncertainty that existed at the end of the reporting period and can thus assist in the decision about the correct accounting treatment. The situation would have been different if the insolvency only occurred after the financial statements had already been authorised for issue. Then, unfortunately, the event that clarified the uncertainty that existed at the end of the reporting period occurred too late to assist in the decision about the appropriate accounting treatment at the end of the reporting period.

A

Suppose, however, that the debtor is indeed declared insolvent before the annual financial statements are finalised and it becomes apparent that AB Ltd will lose the full amount owed by the debtor. This knowledge already allows AB Ltd to write the full amount off at
reporting date. The event after the reporting period, i.e. the insolvency of the debtor, clarifies the uncertainty that existed at the end of the reporting period and can thus assist in the decision about the correct accounting treatment. The situation would have been different if the insolvency only occurred after the financial statements had already been authorised for issue. Then, unfortunately, the event that clarified the uncertainty that existed at the end of the reporting period occurred too late to assist in the decision about the appropriate accounting treatment at the end of the reporting period.

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10
Q

Illustration 2

Suppose that the material debtor is declared insolvent after the reporting period, but not as a result of a deteriorating financial position that existed at the
end of AB Ltd’s reporting period. A natural disaster destroyed the only asset of the debtor, which was unfortunately not insured, leaving the debtor unable to pay. The event that occurred after the reporting period in respect of the debtor was the disaster, but this event
does not clarify any uncertainty at the end of the reporting period – there was no uncertainty at the end of the reporting period! The consequence of the disaster that be fell the debtor after the reporting period of AB Ltd is usually not recognised for accounting purposes on the reporting date.

A

Suppose that the material debtor is declared insolvent after the reporting period, but not as a result of a deteriorating financial position that existed at the
end of AB Ltd’s reporting period. A natural disaster destroyed the only asset of the debtor, which was unfortunately not insured, leaving the debtor unable to pay. The event that occurred after the reporting period in respect of the debtor was the disaster, but this event
does not clarify any uncertainty at the end of the reporting period – there was no uncertainty at the end of the reporting period! The consequence of the disaster that be fell the debtor after the reporting period of AB Ltd is usually not recognised for accounting purposes on the reporting date.

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11
Q

Illustration 3

Furthermore, when the value of an investment depreciates after the reporting period, the value of this investment is not adjusted at the end of the reporting period as it is probable that the decline in the value does not refer to circumstances that existed at the end of the reporting period

A

Furthermore, when the value of an investment depreciates after the reporting period, the value of this investment is not adjusted at the end of the reporting period as it is probable that the decline in the value does not refer to circumstances that existed at the end of the reporting period

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12
Q

Events after the reporting period are those favourable or unfavourable events that occur between the end of the reporting period and the date the financial statements are authorised for issue. Two types of events can be identified, i.e.:

 those that provide additional evidence of the conditions that existed at the end of the
reporting period (adjusting events); and
 those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events).

A

Events after the reporting period are those favourable or unfavourable events that occur between the end of the reporting period and the date the financial statements are authorised for issue. Two types of events can be identified, i.e.:

 those that provide additional evidence of the conditions that existed at the end of the
reporting period (adjusting events); and
 those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events).

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13
Q

These two categories require different accounting treatments. The alternatives are:

 inclusion in the financial statements as adjustments to assets and liabilities and the
accompanying income and expense items; or
 no accounting recognition and no disclosure; or
 disclosure in the notes.

A

These two categories require different accounting treatments. The alternatives are:

 inclusion in the financial statements as adjustments to assets and liabilities and the
accompanying income and expense items; or
 no accounting recognition and no disclosure; or
 disclosure in the notes.

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14
Q

Objective, scope and definitions 1

The objective of IAS 10 is to prescribe:

• when an entity should adjust its financial statements for events after the reporting period; and
• the disclosures that an entity should give about the date when the financial statements were authorised for issue and about events after the reporting period.
[IAS 10.1].

A

The objective of IAS 10 is to prescribe:

• when an entity should adjust its financial statements for events after the reporting period; and
• the disclosures that an entity should give about the date when the financial statements were authorised for issue and about events after the reporting period.
[IAS 10.1].

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15
Q

Objective, scope and definitions 2

The standard does not permit an entity to prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate. [IAS 10.1].

A

The standard does not permit an entity to prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate. [IAS 10.1].

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16
Q

Objective, scope and definitions 3

IAS 10 defines events after the reporting period as ‘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’. [IAS 10.3]. This definition therefore includes events that provide additional evidence about conditions that existed at the end of the reporting period, as well as those that do not. The former are adjusting events, the latter are non-adjusting events. [IAS 10.3]

A

IAS 10 defines events after the reporting period as ‘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’. [IAS 10.3].
This definition therefore includes events that provide additional evidence about conditions that existed at the
end of the reporting period, as well as those that do not. The former are adjusting events, the latter are non-adjusting events. [IAS 10.3]

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17
Q

Date when financial statements are authorised
for issue 1

Given the definition above, the meaning of ‘the date when the financial statements are authorised for issue’ is clearly important. The standard observes that the process for authorising financial statements for issue varies depending upon the management structure, statutory requirements and procedures followed in preparing and finalising the financial statements.
[IAS 10.4].

A

Given the definition above, the meaning of ‘the date when the financial statements are authorised for issue’ is clearly important. The standard observes that the process for authorising financial statements for issue varies depending upon the management structure, statutory requirements and procedures followed in preparing and finalising the financial statements.
[IAS 10.4].

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18
Q

Date when financial statements are authorised
for issue 2

The standard identifies two particular instances of the different meaning of ‘authorised for issue’ as follows:

(a) An entity may be required to submit its financial statements to its shareholders for approval (as in France, for example) after the financial statements have been issued. In such cases, the financial statements are authorised for issue on the date of issue, not the date when shareholders approve them. [IAS 10.5]
(b) The management of an entity may be required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. Such financial statements are authorised for issue when management authorises them for issue to the supervisory board. [IAS 10.6].

A

The standard identifies two particular instances of the different meaning of ‘authorised for issue’ as follows:

(a) An entity may be required to submit its financial statements to its shareholders for approval (as in France, for example) after the financial statements have been issued. In such cases, the financial statements are authorised for issue on the date of issue, not the date when shareholders approve them. [IAS 10.5]
(b) The management of an entity may be required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. Such financial statements are authorised for issue when management authorises them for issue to the supervisory board. [IAS 10.6].

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19
Q

Date when financial statements are authorised for issue 3

These two meanings are illustrated by the following two examples, which are based on the illustrative examples below contained in IAS 10. [IAS 10.5-6].

A

These two meanings are illustrated by the following two examples, which are based on the illustrative examples below contained in IAS 10. [IAS 10.5-6].

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20
Q

Date when financial statements are authorised for issue - Financial statements required to be approved by shareholders

The management of an entity completes draft financial statements for the year to 31 December 2019 on
28 February 2020. On 17 March 2020, the board of directors reviews the financial statements and authorises them for issue. The entity announces its profit and certain other financial information on 18 March 2020. The financial statements are made available to shareholders and others on 1 April 2020. The shareholders approve the financial statements at their annual meeting on 11 May 2020 and the approved financial statements are then filed with a regulatory body on 13 May 2020.
The financial statements are authorised for issue on 17 March 2020 (date of board authorisation for issue).

A

The management of an entity completes draft financial statements for the year to 31 December 2019 on
28 February 2020. On 17 March 2020, the board of directors reviews the financial statements and authorises them for issue. The entity announces its profit and certain other financial information on 18 March 2020. The financial statements are made available to shareholders and others on 1 April 2020. The shareholders approve the financial statements at their annual meeting on 11 May 2020 and the approved financial statements are then filed with a regulatory body on 13 May 2020.
The financial statements are authorised for issue on 17 March 2020 (date of board authorisation for issue).

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21
Q

Date when financial statements are authorised for issue - Financial statements required to be approved by supervisory board

On 17 March 2020, the management of an entity authorises for issue to its supervisory board financial
statements for the year ended 31 December 2019. The supervisory board consists solely of non-executives
and may include representatives of employees and other outside interests. The supervisory board approves the financial statements on 25 March 2020. The financial statements are made available to shareholders and others on 1 April 2020. The shareholders approve the financial statements at their annual meeting on 11 May 2020 and the financial statements are filed with a regulatory body on 13 May 2020.
The financial statements are authorised for issue on 17 March 2020 (date of management authorisation for issue to the supervisory board).

A

On 17 March 2020, the management of an entity authorises for issue to its supervisory board financial statements for the year ended 31 December 2019. The supervisory board consists solely of non-executives
and may include representatives of employees and other outside interests. The supervisory board approves the financial statements on 25 March 2020. The financial statements are made available to shareholders and others on 1 April 2020. The shareholders approve the financial statements at their annual meeting on 11 May 2020 and the financial statements are filed with a regulatory body on 13 May 2020.
The financial statements are authorised for issue on 17 March 2020 (date of management authorisation for issue to the supervisory board).

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22
Q

Date when financial statements are authorised for issue - Financial statements required to be approved by supervisory board – changes are made by supervisory board

Same facts as in above, except that the supervisory board reviews the financial statements on 25 March 2020 and proposes changes to certain note disclosures. The management of the entity incorporates the suggested changes and re-authorises those financial statements for issue to the supervisory board on 27 March 2020. The supervisory board then approves the financial statements on 30 March 2020.
The financial statements are authorised for issue on 27 March 2020 (date of management re-authorisation for
issue to the supervisory board).

A

Same facts as in above, except that the supervisory board reviews the financial statements on 25 March 2020 and proposes changes to certain note disclosures. The management of the entity incorporates the suggested changes and re-authorises those financial statements for issue to the supervisory board on 27 March 2020. The supervisory board then approves the financial statements on 30 March 2020.
The financial statements are authorised for issue on 27 March 2020 (date of management re-authorisation for
issue to the supervisory board).

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23
Q

Date when financial statements are authorised
for issue - Release of financial information before date of authorisation for issue

The management of an entity completes the primary financial statements for the year to 31 December 2019
on 21 January 2020, but has not yet completed the explanatory notes. On 26 January 2020, the board of
directors (which includes management and non-executives) reviews the primary financial statements and authorises them for public media release. The entity announces its profit and certain other financial
information on 28 January 2020. On 11 February 2020, management issues the financial statements (with
full explanatory notes) to the board of directors, which approves the financial statements for filing on
18 February 2020. The entity files the financial statements with a regulatory body on 21 February 2020.
The financial statements are authorised for issue on 18 February 2020 (date the board of directors, approves
the financial statements for filing).

A

The management of an entity completes the primary financial statements for the year to 31 December 2019
on 21 January 2020, but has not yet completed the explanatory notes. On 26 January 2020, the board of
directors (which includes management and non-executives) reviews the primary financial statements and authorises them for public media release. The entity announces its profit and certain other financial
information on 28 January 2020. On 11 February 2020, management issues the financial statements (with
full explanatory notes) to the board of directors, which approves the financial statements for filing on
18 February 2020. The entity files the financial statements with a regulatory body on 21 February 2020.
The financial statements are authorised for issue on 18 February 2020 (date the board of directors, approves
the financial statements for filing).

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24
Q

Date when financial statements are authorised
for issue 4

Example 4 illustrates that events after the reporting period include all events up to the date when the financial statements are authorised for issue, even if those events occur after the public announcement of profit or of other selected financial information. [IAS 10.7]. Accordingly, the information in the financial statements might differ from the equivalent information in a preliminary announcement. As governance structures vary by jurisdiction, entities may be allowed to organise their procedures differently and adjust the financial reporting process accordingly

A

Example 4 illustrates that events after the reporting period include all events up to the date when the financial statements are authorised for issue, even if those events occur after the public announcement of profit or of other selected financial information. [IAS 10.7]. Accordingly, the information in the financial statements might differ from the equivalent information in a preliminary announcement. As governance structures vary by jurisdiction, entities may be allowed to organise their procedures differently and adjust the financial reporting process accordingly

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25
Q

Date when financial statements are authorised
for issue 5

As discussed above, an entity may be required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. For such instances, the phrase ‘made up solely of non executives’ is not defined by the standard, although it contemplates that a supervisory board may include representatives of employees and other outside interests. However, it seems to draw a distinction between those responsible for the executive management of an entity (and the preparation of its financial statements) and those in a position of high-level oversight (including reviewing and approving
the financial statements).

A

As discussed above, an entity may be required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. For such
instances, the phrase ‘made up solely of non executives’ is not defined by the standard, although it contemplates that a supervisory board may include representatives of employees and other outside interests. However, it seems to draw a distinction between those responsible for the executive management of an entity (and the preparation of its financial statements) and those in a position of high-level oversight (including reviewing and approving the financial statements).

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26
Q

ADJUSTING EVENTS

Adjusting events are ‘those that provide evidence of conditions that existed at the end of the reporting period.’ [IAS 10.3(a)].

A

Adjusting events are ‘those that provide evidence of conditions that existed at the end of the reporting period.’ [IAS 10.3(a)].

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27
Q

ADJUSTING EVENTS 1

Examples of adjusting events are as follows:
(a) the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period. In this situation, an entity adjusts any previously recognised provision related to this court case in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets – or recognises a new provision. Mere disclosure of a contingent liability is not sufficient because the settlement provides additional evidence of conditions that existed at the end of the reporting period that would give rise to a provision in
accordance with IAS 37

A

Examples of adjusting events are as follows:
(a) the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period. In this situation, an entity adjusts any previously recognised provision related to this court case in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets – or recognises a new provision. Mere disclosure of a contingent liability is not sufficient because the settlement provides additional evidence of conditions that existed at the end of the reporting period that would give rise to a provision in
accordance with IAS 37

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28
Q

ADJUSTING EVENTS 2

(b) the receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:
(i) the bankruptcy of a customer that occurs after the reporting period usually confirms that the customer was credit-impaired at the end of the reporting period; and
(ii) the sale of inventories after the reporting period may give evidence about their net realisable value at
the end of the reporting period;

A

(b) the receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:
(i) the bankruptcy of a customer that occurs after the reporting period usually confirms that the customer was credit-impaired at the end of the reporting period; and
(ii) the sale of inventories after the reporting period may give evidence about their net realisable value at
the end of the reporting period;

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29
Q

ADJUSTING EVENTS 3

(c) the determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period;
(d) the determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date; and
(e) the discovery of fraud or errors that show that the financial statements are incorrect. [IAS 10.9].

A

(c) the determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period;
(d) the determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date; and
(e) the discovery of fraud or errors that show that the financial statements are incorrect. [IAS 10.9].

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30
Q

ADJUSTING EVENTS 4

IAS 33 – Earnings per Share – is another standard that requires an adjustment for certain transactions after the reporting period. IAS 33 requires an adjustment to earnings per share for certain share transactions after the reporting period (such as bonus issues, share splits or share consolidations) even though the transactions themselves are non-adjusting events. [IAS 10.22].

A

IAS 33 – Earnings per Share – is another standard that requires an adjustment for certain transactions after the reporting period. IAS 33 requires an adjustment to earnings per share for certain share transactions after the reporting period (such as bonus issues, share splits or share consolidations) even though the transactions themselves are non-adjusting events. [IAS 10.22].

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31
Q

NON-ADJUSTING EVENTS 1

The standard states that non-adjusting events are ‘those that are indicative of conditions that arose after the reporting period’. [IAS 10.3(b)].

As examples of non-adjusting events, the standard gives the following events after the reporting period:

A

The standard states that non-adjusting events are ‘those that are indicative of conditions that arose after the reporting period’. [IAS 10.3(b)].

As examples of non-adjusting events, the standard gives the following events after the reporting period:

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32
Q

NON-ADJUSTING EVENTS 2

(a) a major business combination (IFRS 3 – Business Combinations – requires specific disclosures in such cases) or disposing of a major subsidiary;
(b) announcing a plan to discontinue an operation;
(c) major purchases of assets, classification of assets as held for sale in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, other disposals of assets, or expropriation of major assets by government;
(d) the destruction of a major production plant by a fire;
(e) announcing, or commencing the implementation of, a major restructuring

A

(a) a major business combination (IFRS 3 – Business Combinations – requires specific disclosures in such cases) or disposing of a major subsidiary;
(b) announcing a plan to discontinue an operation;
(c) major purchases of assets, classification of assets as held for sale in accordance with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, other disposals of assets, or expropriation of major assets by government;
(d) the destruction of a major production plant by a fire;
(e) announcing, or commencing the implementation of, a major restructuring

33
Q

NON-ADJUSTING EVENTS 3

(f) major ordinary share transactions and potential ordinary share transactions;
(g) abnormally large changes in asset prices or foreign exchange rates;
(h) changes in tax rates or the enactment or announcement of tax laws that significantly affect current and deferred tax assets and liabilities ;
(i) entry into significant commitments or contingent liabilities, for example, by issuing significant guarantees;

A

(f) major ordinary share transactions and potential ordinary share transactions;
(g) abnormally large changes in asset prices or foreign exchange rates;
(h) changes in tax rates or the enactment or announcement of tax laws that significantly affect current and deferred tax assets and liabilities ;
(i) entry into significant commitments or contingent liabilities, for example, by issuing significant guarantees;

34
Q

NON-ADJUSTING EVENTS 4

(j) start of major litigation arising solely out of events that occurred after the reporting period;
(k) a decline in fair value of investments; and
(l) a declaration of dividends to holders of equity instruments (as defined in IAS 32 – Financial Instruments: Presentation)

A

(j) start of major litigation arising solely out of events that occurred after the reporting period;
(k) a decline in fair value of investments; and
(l) a declaration of dividends to holders of equity instruments (as defined in IAS 32 – Financial Instruments: Presentation)

35
Q

NON-ADJUSTING EVENTS 5

The reference in (a) and (c) above to asset disposals as examples of non-adjusting events is not quite the whole story as these may indicate an impairment of assets, which may be an adjusting event. In addition, (b) and (e) above regarding announcements of plans
to discontinue an operation or to restructure a business, respectively, may also lead to an
impairment charge

A

The reference in (a) and (c) above to asset disposals as examples of non-adjusting events is not quite the whole story as these may indicate an impairment of assets, which may be an adjusting event. In addition, (b) and (e) above regarding announcements of plans
to discontinue an operation or to restructure a business, respectively, may also lead to an
impairment charge

36
Q

NON-ADJUSTING EVENTS 6

For declines in fair value of investments, as in (k) above, the standard notes that the decline in fair value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances that arose subsequently. Therefore, in those circumstances the amounts recognised in financial statements for the investments are not adjusted. Similarly, the standard states that an entity does not update the amounts disclosed for the investments as at the end of the reporting period,
although it may need to give additional disclosure, if material [IAS 10.11].

A

For declines in fair value of investments, as in (k) above, the standard notes that the decline in fair value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances that arose subsequently. Therefore, in those circumstances the amounts recognised in financial statements for the investments are not adjusted. Similarly, the standard states that an entity does not update the amounts disclosed for the investments as at the end of the reporting period, although it may need to give additional disclosure, if material [IAS 10.11].

37
Q

The treatment of adjusting events -
Events requiring adjustment to the amounts recognised, or disclosures, in the financial statements 1

IAS 10 requires that the amounts recognised in the financial statements be adjusted to take account of an adjusting event. [IAS 10.8].

A

IAS 10 requires that the amounts recognised in the financial statements be adjusted to take account of an adjusting event. [IAS 10.8].

38
Q

The treatment of adjusting events -
Events requiring adjustment to the amounts recognised, or disclosures, in the financial statements2

The standard also notes that an entity may receive information after the reporting period about conditions existing at the end of the reporting period relating to disclosures made in the financial statements but not affecting the amounts recognised in them. [IAS 10.20]. In such cases, the standard requires the entity to update the disclosures that relate to those conditions for the new information. [IAS 10.19].

A

The standard also notes that an entity may receive information after the reporting period about conditions existing at the end of the reporting period relating to disclosures made in the financial statements but not affecting the amounts recognised in them. [IAS 10.20]. In such cases, the standard requires the entity to update the disclosures that relate to those conditions for the new information. [IAS 10.19].

39
Q

The treatment of adjusting events -
Events requiring adjustment to the amounts recognised, or disclosures, in the financial statements 3

For example, evidence may become available after the reporting period about a contingent liability that existed at the end of the reporting period. In addition to considering whether to recognise or change a provision under IAS 37, IAS 10 requires an entity to update its disclosures about the contingent liability for that evidence. [IAS 10.20].

A

For example, evidence may become available after the reporting period about a contingent liability that existed at the end of the reporting period. In addition to considering whether to recognise or change a provision under IAS 37, IAS 10 requires an entity to update its disclosures about the contingent liability for that evidence. [IAS 10.20].

40
Q

The treatment of adjusting events - Events indicating that the going concern basis is not appropriate 1

If management determines after the reporting period (but before the financial statements are authorised for issue) either that it intends to liquidate the entity or to
cease trading, or that it has no realistic alternative but to do so, the financial statements should not be prepared on the going concern basis. [IAS 10.14].

A

If management determines after the reporting period (but before the financial statements are authorised for issue) either that it intends to liquidate the entity or to
cease trading, or that it has no realistic alternative but to do so, the financial statements should not be prepared on the going concern basis. [IAS 10.14].

41
Q

The treatment of adjusting events - Events indicating that the going concern basis is not appropriate 2

Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the standard states that the effect
is so pervasive that it results in a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting. [IAS 10.15].

A

Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the standard states that the effect
is so pervasive that it results in a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting. [IAS 10.15].

42
Q

The treatment of adjusting events - Events indicating that the going concern basis is not appropriate 3

The standard also contains a reminder of the specific disclosure requirements under IAS 1:

(a) when the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements have been prepared and the reason why the entity is not regarded as a going concern; or
(b) when management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, disclosure of those uncertainties should be made. [IAS 10.16.a, IAS 1.25].

A

The standard also contains a reminder of the specific disclosure requirements under IAS 1:

(a) when the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements have been prepared and the reason why the entity is not regarded as a going concern; or
(b) when management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, disclosure of those uncertainties should be made. [IAS 10.16.a, IAS 1.25].

43
Q

The treatment of adjusting events - Events indicating that the going concern basis is not appropriate 4

While IFRSs are generally written from the perspective that an entity is a going concern, they are also applicable when another basis of accounting is used to prepare financial statements. Various IFRSs acknowledge that financial statements may be prepared on either a going concern basis or an alternative basis of accounting. [IAS 1.25, IAS 10.14, CF(2010) 4.1, CF 3.9].

Such IFRSs do not specifically exclude the application of IFRS when an alternative basis of accounting is used. As a result, financial statements prepared on a ‘non-going concern’ basis of accounting may be described as complying with IFRS as long as that other basis of preparation is sufficiently described in accordance with paragraph 25 of IAS 1

A

While IFRSs are generally written from the perspective that an entity is a going concern, they are also applicable when another basis of accounting is used to prepare financial statements. Various IFRSs acknowledge that financial statements may be prepared on either a going concern basis or an alternative basis of accounting. [IAS 1.25, IAS 10.14, CF(2010) 4.1, CF 3.9].

Such IFRSs do not specifically exclude the application of IFRS when an alternative basis of accounting is used. As a result, financial statements prepared on a ‘non-going concern’ basis of accounting may be described as complying with IFRS as long as that other basis of preparation is sufficiently described in accordance with paragraph 25 of IAS 1

44
Q

The treatment of adjusting events - Events indicating that the going concern basis is not appropriate 5

Regarding the requirement in (b) above, the events or conditions requiring disclosure may arise after the reporting period. [IAS 10.16(b)].

A

Regarding the requirement in (b) above, the events or conditions requiring disclosure may arise after the reporting period. [IAS 10.16(b)].

45
Q

The treatment of non-adjusting events - Intro 1

IAS 10 prohibits the adjustment of amounts recognised in financial statements to reflect non-adjusting events. [IAS 10.10].
It indicates that if non-adjusting events are material,
non-disclosure could influence the economic decisions of users of the financial statements.

A

IAS 10 prohibits the adjustment of amounts recognised in financial statements to reflect non-adjusting events.
[IAS 10.10].
It indicates that if non-adjusting events are material,
non-disclosure could influence the economic decisions of users of the financial statements.

46
Q

The treatment of non-adjusting events - Intro 2

Accordingly, an entity should disclose the following for each material category of non-adjusting event:

(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be made. [IAS 10.21].

A

Accordingly, an entity should disclose the following for each material category of non-adjusting event:

(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be made. [IAS 10.21].

47
Q

The treatment of non-adjusting events - Intro 3

Possibly the non-adjusting events that appear most regularly in financial statements are the acquisition/disposal of a non-current asset, such as an investment in a subsidiary or a business, subsequent to the end of the reporting period.

It is important to note that the list of examples of non-adjusting events in IAS 10, and summarised at 2.1.3 above, is not an exhaustive one; IAS 10 requires disclosure of any material non-adjusting event.

A

Possibly the non-adjusting events that appear most regularly in financial statements are the acquisition/disposal of a non-current asset, such as an investment in a subsidiary or a business, subsequent to the end of the reporting period.

It is important to note that the list of examples of non-adjusting events in IAS 10, and summarised at 2.1.3 above, is not an exhaustive one; IAS 10 requires disclosure of any material non-adjusting event.

48
Q

The treatment of non-adjusting events - Breach of a long-term loan covenant and its subsequent rectification 1

When an entity breaches a provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand, it classifies the liability as current in its statement of financial position.
[IAS 1.74]. This may also give rise to going concern uncertainties

A

When an entity breaches a provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand, it classifies the liability as current in its statement of financial position. [IAS 1.74]. This may also give rise to going concern uncertainties

49
Q

The treatment of non-adjusting events - Breach of a long-term loan covenant and its subsequent rectification 2

It is not uncommon that such covenant breaches are subsequently rectified; however, a subsequent rectification is not an adjusting event and therefore does not change the classification of the liability in the statement of financial position from current to
non-current

A

It is not uncommon that such covenant breaches are subsequently rectified; however, a subsequent rectification is not an adjusting event and therefore does not change the classification of the liability in the statement of financial position from current to
non-current

50
Q

The treatment of non-adjusting events - Breach of a long-term loan covenant and its subsequent rectification 3

IAS 1 requires disclosure of the following remedial arrangements if such events occur between the end of the reporting period and the date the financial statements are authorised for issue:
• refinancing on a long-term basis;
• rectification of a breach of a long-term loan arrangement; and
• the granting by the lender of a period of grace to rectify a breach of a long-term loan arrangement ending at least twelve months after the reporting period. [IAS 1.76].

A

IAS 1 requires disclosure of the following remedial arrangements if such events occur between the end of the reporting period and the date the financial statements are authorised for issue:
• refinancing on a long-term basis;
• rectification of a breach of a long-term loan arrangement; and
• the granting by the lender of a period of grace to rectify a breach of a long-term loan arrangement ending at least twelve months after the reporting period. [IAS 1.76].

51
Q

Disclosure 1

The following shall be disclosed:

 The date when the financial statements were authorised for issue and who gave that
authorisation.
 Adjusting events: Update disclosure about conditions at the end of the reporting period. 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 new information.

A

The following shall be disclosed:

 The date when the financial statements were authorised for issue and who gave that
authorisation.
 Adjusting events: Update disclosure about conditions at the end of the reporting period. 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 new information.

52
Q

Disclosure 2

 Non-adjusting events after the reporting period that are material shall be disclosed.
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:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

A

 Non-adjusting events after the reporting period that are material shall be disclosed.
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:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

53
Q

Disclosure 3a

The following examples of non-adjusting events, listed in IAS 10.22, are so important that the events will normally lead to disclosure:
 a large business amalgamation or, conversely, the sale of a subsidiary after the reporting period;
 discontinuation of operations, sale of assets or liabilities as a result of operations that are being discontinued, conclusion of binding agreements on the sale of such assets, or the payment of such liabilities;
 substantial purchase or sale of assets, or expropriation of major assets by the
government;
 destruction of a major plant after the reporting period;
 plans for restructuring;

A

The following examples of non-adjusting events, listed in IAS 10.22, are so important that the events will normally lead to disclosure:
 a large business amalgamation or, conversely, the sale of a subsidiary after the reporting period;
 discontinuation of operations, sale of assets or liabilities as a result of operations that are being discontinued, conclusion of binding agreements on the sale of such assets, or the payment of such liabilities;
 substantial purchase or sale of assets, or expropriation of major assets by the
government;
 destruction of a major plant after the reporting period;
 plans for restructuring;

54
Q

Disclosure 3b

 large ordinary share transactions and potential share transactions after the reporting period, except for capitalisation and bonus issues, and share splits or reverse share splits;
 abnormal changes in the value of assets or exchange rates after the reporting period;
 changes in tax rates or tax legislation that were promulgated after the reporting period and that will have a major impact on the figures for tax and deferred tax reflected in the financial statements;
 conclusion of material commitments or contingent liabilities, for instance the provision of material warranties; and
 litigation as a result of events that occurred after the reporting period

A

 large ordinary share transactions and potential share transactions after the reporting period, except for capitalisation and bonus issues, and share splits or reverse share splits;
 abnormal changes in the value of assets or exchange rates after the reporting period;
 changes in tax rates or tax legislation that were promulgated after the reporting period and that will have a major impact on the figures for tax and deferred tax reflected in the financial statements;
 conclusion of material commitments or contingent liabilities, for instance the provision of material warranties; and
 litigation as a result of events that occurred after the reporting period

55
Q

Disclosure 4

Dividends: The following should be disclosed in the notes to the financial statements:
 the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to equity holders during the period; and
 the related amount per share

A

Dividends: The following should be disclosed in the notes to the financial statements:
 the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to equity holders during the period; and
 the related amount per share

56
Q

Valuation of inventory 1

The sale of inventories after the reporting period is normally a good indicator of their net realisable value (NRV) at that date. IAS 10 states that such sales ‘may give evidence about their net realisable value at the end of the reporting period’. [IAS 10.9(b)(ii)].
However, in some cases, NRV decreases because of conditions that did not exist at the end of the reporting period

A

The sale of inventories after the reporting period is normally a good indicator of their net realisable value (NRV) at that date. IAS 10 states that such sales ‘may give evidence about their net realisable value at the end of the reporting period’. [IAS 10.9(b)(ii)].
However, in some cases, NRV decreases because of conditions that did not exist at the end of the reporting period

57
Q

Valuation of inventory 2

Therefore, the problem is determining why NRV decreased. Did it decrease because of circumstances that existed at the end of the reporting period, which subsequently became known, or did it decrease because of circumstances that arose subsequently? A decrease in price is merely a response to changing conditions so it is important to assess the reasons for, and timing of, these changes.

A

Therefore, the problem is determining why NRV decreased. Did it decrease because of circumstances that existed at the end of the reporting period, which subsequently became known, or did it decrease because of circumstances that arose subsequently? A decrease in price is merely a response to changing conditions so it is important to assess the reasons for, and timing of, these changes.

58
Q

Valuation of inventory 3a

Some examples of changing conditions are as follows:

(a) Price reductions caused by a sudden increase in cheap imports.

Whilst it is arguable that the ‘dumping’ of cheap imports after the reporting period is a condition that arises subsequent to that date, it is more likely that this is a reaction to a condition that already existed such as overproduction in other parts of the world. Thus, it might be more appropriate in such a situation to adjust the value of inventories based on its subsequent NRV.

A

Some examples of changing conditions are as follows:

(a) Price reductions caused by a sudden increase in cheap imports.

Whilst it is arguable that the ‘dumping’ of cheap imports after the reporting period is a condition that arises subsequent to that date, it is more likely that this is a reaction to a condition that already existed such as overproduction in other parts of the world. Thus, it might be more appropriate in such a situation to adjust the value of inventories based on its subsequent NRV.

59
Q

Valuation of inventory 3b

(b) Price reductions caused by increased competition.

The reasons for price reductions and increased competition do not generally arise overnight but normally occur over a period. For example, a competitor may have built up a competitive advantage by investing in machinery that is more efficient. In these circumstances, it is appropriate for an entity to adjust the valuation of its inventories because its own investment in production machinery is inferior to its competitor’s and this situation existed at the end of the reporting period.

A

(b) Price reductions caused by increased competition.

The reasons for price reductions and increased competition do not generally arise overnight but normally occur over a period. For example, a competitor may have built up a competitive advantage by investing in machinery that is more efficient. In these circumstances, it is appropriate for an entity to adjust the valuation of its inventories because its own investment in production machinery is inferior to its competitor’s and this situation existed at the end of the reporting period.

60
Q

Valuation of inventory 3c

(c) Price reductions caused by the introduction of an improved competitive product.

It is unlikely that a competitor developed and introduced an improved product overnight. Therefore, it is correct to adjust the valuation of inventories held at the end of the reporting period to their NRV after that introduction because the entity’s failure to maintain its competitive position in relation to product improvements existed at the end of the reporting period.

A

(c) Price reductions caused by the introduction of an improved competitive product.

It is unlikely that a competitor developed and introduced an improved product overnight. Therefore, it is correct to adjust the valuation of inventories held at the end of the reporting period to their NRV after that introduction because the entity’s failure to maintain its competitive position in relation to product improvements existed at the end of the reporting period.

61
Q

Valuation of inventory 4

Competitive pressures that caused a decrease in NRV after the reporting period are generally additional evidence of conditions that developed over a period and existed at the end of the reporting period. Consequently, their effects normally require
adjustment in the financial statements.

A

Competitive pressures that caused a decrease in NRV after the reporting period are generally additional evidence of conditions that developed over a period and existed at the end of the reporting period. Consequently, their effects normally require
adjustment in the financial statements.

62
Q

Valuation of inventory 5

However, for certain types of inventory, there is clear evidence of a price at the end of the reporting period and it is inappropriate to adjust the price of that inventory to reflect a subsequent decline. An example is inventories for which there is a price on an appropriate commodities market. In addition, inventory may be physically damaged or destroyed after the reporting period (e.g. by fire, flood, or other disaster). In these cases, the entity does not adjust the financial statements. However, the entity may be required
to disclose the subsequent decline in NRV of the inventories if the impact is material

A

However, for certain types of inventory, there is clear evidence of a price at the end of the reporting period and it is inappropriate to adjust the price of that inventory to reflect a subsequent decline. An example is inventories for which there is a price on an appropriate commodities market. In addition, inventory may be physically damaged or destroyed after the reporting period (e.g. by fire, flood, or other disaster). In these cases, the entity does not adjust the financial statements. However, the entity may be required
to disclose the subsequent decline in NRV of the inventories if the impact is material

63
Q

Discovery of fraud after the reporting period 1

When fraud is discovered after the reporting date the implications on the financial statements should be considered. In particular, it should be determined whether the fraud is indicative of a prior period error, and that financial information should be restated, or
merely a change in estimate requiring prospective adjustment. Application of the IAS 8 definitions of a ‘prior period error’ and a ‘change in accounting estimate’ in the case of a fraud requires the exercise of judgement. The facts and circumstances are evaluated to determine if the discovery of the fraud resulted from a previous failure to use, or misuse of, reliable information; or from new information.

A

When fraud is discovered after the reporting date the implications on the financial statements should be considered. In particular, it should be determined whether the fraud is indicative of a prior period error, and that financial information should be restated, or
merely a change in estimate requiring prospective adjustment. Application of the IAS 8 definitions of a ‘prior period error’ and a ‘change in accounting estimate’ in the case of a fraud requires the exercise of judgement. The facts and circumstances are evaluated to determine if the discovery of the fraud resulted from a previous failure to use, or misuse of, reliable information; or from new information.

64
Q

Discovery of fraud after the reporting period 2

If the fraud meets the definition of a prior period error, the fraud would be an adjusting event as it relates to conditions that existed at the end of the reporting period. However, if the fraud meets the definition of a change in estimate, the application of IAS 10 is required to determine whether financial information is required to be adjusted, or whether disclosure is sufficient. The facts and circumstances are evaluated to determine if the discovery of the fraud provides evidence of circumstances that existed at the end of the reporting period or circumstances that arose after that date. Determining this is a complex task and requires judgement and careful consideration of the specifics to each case.

A

If the fraud meets the definition of a prior period error, the fraud would be an adjusting event as it relates to conditions that existed at the end of the reporting period. However, if the fraud meets the definition of a change in estimate, the application of IAS 10 is required to determine whether financial information is required to be adjusted, or whether disclosure is sufficient. The facts and circumstances are evaluated to determine if the discovery of the fraud provides evidence of circumstances that existed at the end of the reporting
period or circumstances that arose after that date. Determining this is a complex task and requires judgement and careful consideration of the specifics to each case.

65
Q

Valuation of investment property at fair value and tenant insolvency 1

The fair value of investment property reflects, among other things, the quality of tenants’ covenants and the expected future rental income from the property. If a tenant ceases to be able to meet its lease obligations due to insolvency after the reporting period, an entity considers how this event is reflected in the valuation at the end of the reporting period.

A

The fair value of investment property reflects, among other things, the quality of tenants’ covenants and the expected future rental income from the property. If a tenant ceases to be able to meet its lease obligations due to insolvency after the reporting period, an entity considers how this event is reflected in the valuation at the end of the reporting period.

66
Q

Valuation of investment property at fair value and tenant insolvency 2

IAS 40 – Investment Property – requires the fair value of investment property, when measured in accordance with IFRS 13 – Fair Value Measurement, to reflect, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions. [IAS 40.40].
In addition, professional valuations generally reference the state of the market at the date of valuation without the use of hindsight.

A

IAS 40 – Investment Property – requires the fair value of investment property, when measured in accordance with IFRS 13 – Fair Value Measurement, to reflect, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions. [IAS 40.40].
In addition, professional valuations generally reference the state of the market at the date of valuation without the use of hindsight.

67
Q

Valuation of investment property at fair value and tenant insolvency 3

Consequently, the insolvency of a tenant is not normally an adjusting event to the fair value of the
investment property because the investment property still holds value in the market.
However, it would generally be indicative of an adjusting event for any rent receivable from that tenant.

A

Consequently, the insolvency of a tenant is not normally an adjusting event to the fair value of the
investment property because the investment property still holds value in the market.
However, it would generally be indicative of an adjusting event for any rent receivable from that tenant.

68
Q

Valuation of investment property at fair value and tenant insolvency 4

This conclusion is consistent with the treatment of investment property measured using the alternative cost model. IAS 10 states that a decline in fair value of investments after the reporting period and before the date the financial statements are authorised for
issue is a non-adjusting event, as the decline does not normally relate to a condition at the end of the reporting period. This decline in fair value, however, may be required to be disclosed if material

A

This conclusion is consistent with the treatment of investment property measured using the alternative cost model. IAS 10 states that a decline in fair value of investments after the reporting period and before the date the financial statements are authorised for
issue is a non-adjusting event, as the decline does not normally relate to a condition at the end of the reporting period. This decline in fair value, however, may be required to be disclosed if material

69
Q

Examples of adjusting events Kaplan : 1a

  • irrecoverable debts arising after the reporting date, which may help to quantify the allowance for receivables as at the reporting date
  • sale of inventory below cost, providing evidence of net realisable value
  • amounts received or receivable in respect of insurance claims which were being negotiated at the reporting date
  • the discovery of fraud or errors.
A
  • irrecoverable debts arising after the reporting date, which may help to quantify the allowance for receivables as at the reporting date
  • sale of inventory below cost, providing evidence of net realisable value
  • amounts received or receivable in respect of insurance claims which were being negotiated at the reporting date
  • the discovery of fraud or errors.
70
Q

Examples of adjusting events Kaplan : 1b

  • the sale of inventory after the reporting date – this gives evidence about the net realisable value of inventory at the reporting date
  • the bankruptcy of a customer after the reporting date – this confirms that an allowance is required against a receivables balance at the reporting date
  • the discovery of fraud or errors – this shows that the financial statements are incorrect
  • the settlement after the reporting period of a court case – this confirms the existence and value of the entity’s obligation at the reporting date.
A
  • the sale of inventory after the reporting date – this gives evidence about the net realisable value of inventory at the reporting date
  • the bankruptcy of a customer after the reporting date – this confirms that an allowance is required against a receivables balance at the reporting date
  • the discovery of fraud or errors – this shows that the financial statements are incorrect
  • the settlement after the reporting period of a court case – this confirms the existence and value of the entity’s obligation at the reporting date.
71
Q

Examples of adjusting events Emile : 2a

 The receipt of information after the end of the reporting period indicating that an asset was impaired as at the end of the reporting period. For example,
information may be obtained that indicates the need to make a provision for a bad debt against a trade receivable in the year-end statement of financial position.
 Similarly, evidence might be obtained after the end of the reporting period indicating that as at the end of the reporting period the net realisable value of some inventory was less than its cost, and the inventory should therefore be written down in value in the statement of financial position. The sale of inventory at less than cost soon after the end of the reporting period would provide such evidence

A

 The receipt of information after the end of the reporting period indicating that an asset was impaired as at the end of the reporting period. For example,
information may be obtained that indicates the need to make a provision for a bad debt against a trade receivable in the year-end statement of financial position.
 Similarly, evidence might be obtained after the end of the reporting period indicating that as at the end of the reporting period the net realisable value of some inventory was less than its cost, and the inventory should therefore be written down in value in the statement of financial position. The sale of inventory at less than cost soon after the end of the reporting period would provide such evidence

72
Q

Examples of adjusting events Emile : 2b

 The settlement of a court case after the end of the reporting period, confirming that the entity had a present obligation as at the end of the reporting period as a consequence of the case.
 The determination after the end of the reporting period of the purchase cost of an asset, where the asset had already been purchased before the end of the reporting period, but the purchase price had not been finally agreed or decided. Similarly, the determination after the end of the reporting period of the sale price for a non-current asset, where the sale had been made before the end of the reporting period but the sale price had not yet been finally agreed.
 The discovery of fraud or errors showing that the financial statements are incorrect

A

Examples of adjusting events Emile :

 The settlement of a court case after the end of the reporting period, confirming that the entity had a present obligation as at the end of the reporting period as a consequence of the case.
 The determination after the end of the reporting period of the purchase cost of an asset, where the asset had already been purchased before the end of the reporting period, but the purchase price had not been finally agreed or decided. Similarly, the determination after the end of the reporting period of the sale price for a non-current asset, where the sale had been made before the end of the reporting period but the sale price had not yet been finally agreed.
 The discovery of fraud or errors showing that the financial statements are incorrect

73
Q

Examples of adjusting events BPP : 3

 Evidence of a permanent diminution in property value prior to the year end
 Sale of inventory after the reporting period for less than its carrying value at the year end
 Insolvency of a customer with a balance owing at the year end
 Amounts received or paid in respect of legal or insurance claims which were in negotiation at the
year end
 Determination after the year end of the sale or purchase price of assets sold or purchased before
the year end

A

Examples of adjusting events BPP :

 Evidence of a permanent diminution in property value prior to the year end
 Sale of inventory after the reporting period for less than its carrying value at the year end
 Insolvency of a customer with a balance owing at the year end
 Amounts received or paid in respect of legal or insurance claims which were in negotiation at the
year end
 Determination after the year end of the sale or purchase price of assets sold or purchased before
the year end

74
Q

Examples of non-adjusting events Kaplan : 1a

  • a major business combination after the reporting date
  • the destruction of a major production plant by a fire after the reporting date
  • abnormally large changes in asset prices or foreign exchange rates after the reporting date.
A
  • a major business combination after the reporting date
  • the destruction of a major production plant by a fire after the reporting date
  • abnormally large changes in asset prices or foreign exchange rates after the reporting date.
75
Q

Examples of non-adjusting events Kaplan : 1b

  • a major business combination after the reporting date or the disposal of a major subsidiary
  • announcing a plan after the reporting date to discontinue an operation
  • major purchases and disposals of assets after the reporting date
  • destruction of assets by a fire after the reporting date
  • announcing or commencing a major restructuring after the reporting date
  • large changes after the reporting date in foreign exchange rates
  • equity dividends declared or proposed after the reporting date.
A
  • a major business combination after the reporting date or the disposal of a major subsidiary
  • announcing a plan after the reporting date to discontinue an operation
  • major purchases and disposals of assets after the reporting date
  • destruction of assets by a fire after the reporting date
  • announcing or commencing a major restructuring after the reporting date
  • large changes after the reporting date in foreign exchange rates
  • equity dividends declared or proposed after the reporting date.
76
Q

Examples of non-adjusting events Emile : 2a

 A fall in value of an asset, for example a large fall in the market value of some investments owned by the entity, between the end of the reporting period and the date the financial statements are authorised for issue. A fall in market value after the end of the reporting period will normally reflect conditions that arise after the reporting period has ended, not conditions already existing before then.
 The acquisition or disposal of a major subsidiary after the reporting period.
 The formal announcement after the reporting period of a plan to discontinue a major operation.

A

 A fall in value of an asset, for example a large fall in the market value of some investments owned by the entity, between the end of the reporting period and the date the financial statements are authorised for issue. A fall in market value after the end of the reporting period will normally reflect conditions that arise after the reporting period has ended, not conditions already existing before then.
 The acquisition or disposal of a major subsidiary after the reporting period.
 The formal announcement after the reporting period of a plan to discontinue a major operation.

77
Q

Examples of non-adjusting events Emile : 2b

 Announcing or commencing the implementation of a major restructuring.
 The destruction of a major plant by a fire after the reporting period. The ‘condition’ is the fire, not the plant, and the fire didn’t exist at the end of the
reporting period. The plant should therefore be reported in the statement of financial position at its carrying amount as at the end of the reporting period.
The fire, and the financial consequences of the fire, should be disclosed in a note to the financial statements.

A

 Announcing or commencing the implementation of a major restructuring.
 The destruction of a major plant by a fire after the reporting period. The ‘condition’ is the fire, not the plant, and the fire didn’t exist at the end of the
reporting period. The plant should therefore be reported in the statement of financial position at its carrying amount as at the end of the reporting period.
The fire, and the financial consequences of the fire, should be disclosed in a note to the financial

78
Q

Examples of non-adjusting events BPP : 3

 Acquisition of, or disposal of, a subsidiary after the year end
 Announcement of a plan to discontinue an operation
 Major purchases and disposals of assets
 Destruction of a production plant by fire after the reporting period
 Announcement or commencing implementation of a major restructuring
 Share transactions after the reporting period
 Litigation commenced after the reporting period

A

Examples of non-adjusting events BPP :

 Acquisition of, or disposal of, a subsidiary after the year end
 Announcement of a plan to discontinue an operation
 Major purchases and disposals of assets
 Destruction of a production plant by fire after the reporting period
 Announcement or commencing implementation of a major restructuring
 Share transactions after the reporting period
 Litigation commenced after the reporting period

Conceptual Framework (29 decks)

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