Question

IAS 10: Events after the Reporting Period addresses two issues: adjusting events, namely, those events that provide evidence of conditions that existed at the end of the reporting period and non-adjusting events: which are those events that are indicative of conditions that arose after the reporting period that need to be reflected in the financial statements. Amounts recognized in the financial statements are adjusted to reflect adjusting events, but only disclosures are required for material non-adjusting events. Management’s judgment is required in determining whether events that took place after the end of the reporting period are adjusting or non- adjusting events. This will be highly dependent on the reporting date and the specific facts and circumstances of each company’s operations. Coronavirus has overwhelmed the world in various ways and at various times. China was the first to announce spread of the virus in November, 2019. UK announced its first case of coronavirus in February, 2020 and Ghana announced its first case in March, 2020. While company A resides in China, company B resides in the UK and C resides in Ghana. Company A’s financial reporting period ends on 31st October each year; company B’s financial reporting period ends on 31st December, each year and company C’s financial reporting period ends on the 31st of March each year. Management of these companies may need to continually review and update the assessments up to the date the financial statements are issued given the fluid nature of the crisis and the uncertainties involved.

You are required to discuss in respect of each of the companies, the potential management conclusions of the impact of the coronavirus on end of year reporting, mindful of IAS 10.

Answer 1

IAS i10, iEvents iafter ithe iReporting iPeriod icontains irequirements ifor iwhen ievents iafter ithe iend iof ithe ireporting iperiod ishould ibe iadjusted iin ithe ifinancial istatements. iAdjusting ievents iare ithose iproviding ievidence iof iconditions iexisting iat ithe iend iof ithe ireporting iperiod, iwhereas inon-adjusting ievents iare iindicative iof iconditions iarising iafter ithe ireporting iperiod i(the ilatter ibeing idisclosed iwhere imaterial).

The iamounts irecognized iin ithe ifinancial istatements iare iadjusted ito ireflect iadjusting ievents iafter ithe iend iof ithe ireporting iperiod. i iNon-adjusting ievents iare inot iadjusted ifor ibut idisclosure iis irequired ifor ieach imaterial icategory iof inon-adjusting ievent iafter ithe ireporting iperiod.

Currently, ino ione iis isurprised iwith ithe ioften irepeated iopinion ithat ithe ipandemic imay iresult iin idisruptions iof iproduction iand isupply ichains, itimely irestrictions iin iaccess ito ilabour ifor ihealth-related ireasons, iand ithat iall ithese ifactors icombined imay ireduce iturnover, iprofits, isalaries iand iemployment. iInvestments ior iexpansion ito inew imarkets imay ibe idelayed ior istopped idue ito iuncertainty. iFunding imay ibe imore idifficult ito iobtain. iLoan idefault iand ivolatility iof ifinancial iinstruments imeasurement iare ilikely ito ibecome iissues iin ithe ifinance isector. iPublic iaid iin idifferent iforms iwill ibe iof ikey iimportance ifor imany iindustries, isuch ias iair itransport, itourism ior icatering. iAn iaid ipackage ifor ienterprises ihas ibeen iannounced iin iPoland. iOn ithe iEU ilevel, ithe iCOVID-19 iresponse iincludes iusing imoney ifrom ithe iCohesion iFund.

Economic iturmoil icaused iby iCOVID-19 imaterially iaffects ifinancial ireporting. iAnd ithis iis inot ia ithing ito ibe ileft ifor ilater, iif ionly ibecause ion i12 iMarch iESMA iissued ispecial ifinancial ireporting iguidelines, iunder iwhich iissuers ishould iprovide itransparent iinformation iregarding iactual iand ipotential ieffects iof iCOVID-19 ito ithe ibroadest ipossible iextent ibased ion iquantitative iand iqualitative ianalysis iof itheir ibusiness ioperations, icurrent ifinancial istanding iand iperformance. iThe iinformation iis iexpected ito ibe iincluded iin ithe ifinancial istatements ifor i2019, iand iif ithese ihave ibeen ialready ipublished, iin iinterim ifinancial istatements. iTherefore, iappropriate idata ipreparation ishould icommence iwithout iundue idelay. iThe iscope iof idisclosures ito ibe iprovided iin ifinancial istatements ishall idepend ion ibusiness ispecifics, iindustry iand imarkets ion iwhich ia icompany ioperates. iThe iselected iareas idescribed ibelow irequire ispecial iattention iregarding ithe ipotential ieffects iof iCOVID-19 ion iIFRS ireporting. iLet ius ibegin iwith ithe iobservation ithat imost iof iCOVID-19 irelated ievents ithat ioccurred iafter i31 iDecember i2019 ishall inot irequire iadjustments ito ifinancial istatements iin iline iwith iIAS i10 i“Events iafter ithe iReporting iPeriod” ifor ientities ipreparing ifinancial istatements ias iat ithat idate.

i i i i i i i i i i i i i i i i i i i i iAt ieach ireporting iperiod iend, ia ithorough iassessment iof iinformation ithat ibecomes iavailable iafter ithe ireporting iperiod iend ibut iprior ito ithe ifinancial istatements ipublication idate imust ibe icarried iout. iCertain idata ireported iin ifinancial istatements imust ibe iadjusted ito ireflect ievents ithat iprove ithe ioccurrence iof icertain iconditions iat ithe ireporting iperiod iend. iWhen inon-adjusting ievents, iwhich imay iinclude ithe ieffects iof iCOVID-19 iobserved iearly ithis iyear, iare iconsidered imaterial iin iline iwith iIAS i10, ientities iare iexpected ito idisclose ithe inature iof ithese ievents iand itheir iestimated ifinancial iimpact ior ia istatement ithat ithe iimpact icannot ibe iestimated. iIn irelation ito ireporting iperiods iended ion i31 iDecember i2019 ior ibefore ithat idate, iin iprinciple iit ishould ibe iassumed ithat ithe ieffects iof ievents iafter ithe ireporting iperiod iend i(e.g. idecisions imade iin iresponse ito iCOVID-19) imust ibe idisclosed iin ifinancial istatements ibut ithey ido inot iaffect ifigures irecognized iin i2019 ifinancial istatements. iFor ientities iwhose ifinancial iyear iends ias iat ianother idate, ie.g. ias iat i31 iMarch, ithe ieffects iof iCOVID-19 ifor iQ1 i2020 ishall ibe iincluded idirectly iin ithe ireported iitems. i

As ia iresult iof iCOVID-19 iand iits iassociated ieffects, ientities ineed ito iconsider iwhether, iin itheir ispecific icircumstances, ithey ihave ithe iability ito icontinue ias ia igoing iconcern ifor iat ileast, ibut inot ilimited ito, i12 imonths ifrom ithe ireporting idate. iManagement’s iassessment iof ithe ientity’s iability ito icontinue ias ia igoing iconcern iinvolves imaking ia ijudgment, iat ia iparticular ipoint iin itime, iabout iinherently iuncertain ifuture ioutcomes iof ievents ior iconditions. iThis iwill irequire ian ientity ito iconsider, iamong iother ithings, i

(1) the iextent iof ioperational idisruption; i

(2) potential idiminished idemand ifor iproducts ior iservices; i

(3) contractual iobligations idue ior ianticipated iwithin ione iyear; i

(4) ipotential iliquidity iand iworking icapital ishortfalls; iand

(5) iaccess ito iexisting isources iof icapital i(e.g. iavailable iline iof icredit, igovernment iaid). i

In imaking iits igoing iconcern iassessment, iIAS i10 iEvents iafter ithe iReporting iPeriod irequires ian ientity ito iconsider ievents iup ito ithe idate iof iauthorization iof ithe ifinancial istatements. iIn icertain ijurisdictions, iregulations imay iextend ithis iperiod i(e.g. iuntil ipresentation iof ithe ifinancial istatements iat ian iannual ishareholders’ imeeting).

Entities imust icarefully iconsider itheir iunique icircumstances iand irisk iexposures iwhen ianalyzing ihow irecent ievents imay iaffect itheir ifinancial istatements. iSpecifically, ifinancial istatement idisclosures iwill ineed ito iconvey ithe imaterial ieffects iof ithe iCOVID-19 ipandemic.

Finally, ithe irequirements iof iIAS i10 iaddressed iin i‘Events iafter ithe iend iof ithe ireporting iperiod’ iare ialso iapplicable ito iinterim iperiods. iWhilst ithe iimpact iof ithe iCOVID-19 ipandemic imay ihave iaffected ithe irecognition iand imeasurement iof iitems iin ian ientity’s iinterim ifinancial ireport, ithis idoes inot imean ithat iall ievents iafter ithe iinterim ireporting idate iare iadjusting ievents. iEach isignificant ievent ishould ibe iassessed ito idetermine iwhether iit iprovides ievidence iof iconditions ithat iexisted iat ithe iend iof ithe iinterim ireporting iperiod ior iwhether iit ireflects ia ichange iin iconditions iafter ithe iend iof ithe iinterim ireporting iperiod. iWhilst inot ispecifically irequired iby iIAS i34, iin ithe icurrent ifast-changing ienvironment, iit imay ibe irelevant ifor ientities ito idisclose ithe idate iof iauthorization iof itheir iinterim ifinancial ireports iso ithat iusers iknow ithat ithe ifinancial istatements ido inot ireflect ievents iafter ithis idate.