Question

The Statement of Financial Position date (i.e., the year-end date) for Company AB is 31 December 2018. The financial accounts for Company AB were approved on 1 March 2019. On 1 February 2019, a major customer of Company AB, announced that they were bankrupt and could not pay the huge amounts they owed to Firm AB

For Company AB for the financial year-ended 31 December 2018 this event:

Select one:

a. None of these answers

b. Is not an adjusting event

c. Is an adjusting event

Answer 1

Answer.

Option C is correct.

Adjusting event:

Events after the reporting period are 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.
Adjusting events are events occurring after the reporting date that provide evidence of conditions that existed at the
end of the reporting period.
Examples of adjusting events include:
• events that indicate that the going concern assumption in relation to the whole or part of the entity is
not appropriate;
• settlements after reporting date of court cases that confirm the entity had a present obligation at
reporting date;
• receipt of information after reporting date indicating that an asset was impaired at reporting date;
• bankruptcy of a customer that occurs after reporting date that confirms a loss existed at reporting date
on trade receivables;
• sales of inventory after reporting date that give evidence about their net realisable value at reporting
date;
• discovery of fraud or errors that show the financial statements are incorrect.