Question

TRUE OR FALSE?

Ordinarily,an event indicating a material condition arising after the reporting date requires inclusion as an 'except for '?

Answer 1

International Accounting Standard 10 — Events After the Reporting Period

INTERNATIONAL STANDARD ON AUDITING (ISA) 560 - Subsequent Events

CONCEPT

IAS 10 Events After The Reporting Period contains requirements for when events after the end of the reporting period should be adjusted in the financial statements.

Adjusting events are those providing evidence of conditions existing at the end of the reporting period,

whereas Non-adjusting events are indicative of conditions arising after the reporting period (the latter being disclosed where material).

This International Standard on Auditing (ISA) deals with the auditor’s responsibilities relating to subsequent events in an audit of financial statements.

SCOPE

This Standard shall be applied in the accounting for, and disclosure of, events after the reporting period.

DEFINITIONS

Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue.

Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.

Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period

Date of the financial statements – The date of the end of the latest period covered by the financial statements.

Date of approval of the financial statements –

a)The date on which Financial statements are approved by Board

b)The date on which all the statements that comprise the financial statements, including the related notes, have been prepared and those with the recognized authority have asserted that they have taken responsibility for those financial statements.

Date the financial statements are issued – The date that the auditor’s report and audited financial statements are made available to third parties

Subsequent events – Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.

Accounting Effect

• Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.
• Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting period.
• If an entity declares dividends after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. That is a non-adjusting event.

Adjusting Events after the reporting period

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

Non Adjusting Events after the reporting period

If non-adjusting events after the reporting period are material, 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 of nonadjusting event after the reporting period:

(a) the nature of the event; and

(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

Subsequent Events

1. Financial statements may be affected by certain events that occur after the date of the financial statements. Many financial reporting frameworks specifically refer to such events.1 Such financial reporting frameworks ordinarily identify two types of events:

(a) Those that provide evidence of conditions that existed at the date of the financial statements; and

(b) Those that provide evidence of conditions that arose after the date of the financial statements.

ISA 700 explains that the date of the auditor’s report informs the reader that the auditor has considered the effect of events and transactions of which the auditor becomes aware and that occurred up to that date

Disclosure

1)Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions.

The required disclosure is

(a) the nature of the event and

(b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made.

A company should update disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that it receives after the reporting period about those conditions.

Companies must disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact.

Example

1) One of your major customers declares bankruptcy.

If there is a Outstanding Debtors for $10Million as on 31.12.2019 (at the time of reporting period) and debtors become Bankcrupt after reporting period but before date that the financial statements are authorised for issue.

In this case Events was exsiting at the end of reporting period that requires adjustment in Financial statements

2) Fire In Manufacturing Unit

f there is a sudden fire in the Manufacturing unit after reporting period but before date that the financial statements are authorised for issue.

An event after the reporting period that is indicative of a condition that arose after the end of the reporting period

In this case Events was not Existing at the time of reporting period and consist of Non Adjustable Events and should be disclosed if they are of such importance non-disclosure would affect the ability of users to make proper evaluations and decisions

3) Proposed Dividend

If an entity declares dividends to equity shareholders after the reporting period, the entity shall not recognize those dividends as a Liability at the end of the reporting period.

This is because no obligation exists at that time. Such dividends are disclosed in the notes to the FS.

This makes dividend declaration a non-adjusting event

4)Settlememt of Litigation

Settlement of litigation against the entity after the reporting date, in respect of events that occurred before the end of reporting period, may provide evidence of the existence and amount of liability at the reporting date.

A liability in respect of the litigation may be recorded in the financial statements if not recognized initially or the amount of liability may be adjusted in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

CONCULSION

Q) Ordinarily,an event indicating a material condition arising after the reporting date requires inclusion as an 'except for '?

A) FALSE, It requires an Adjustment (i.e Adjusting and Non Adjusting Events) and Disclosure in the Financial Statements of an Entity.(As explained Above)

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