Question

    Why it is important to review events after reporting period?

Answer 1

Important to review events after the reporting period

The events which take place after the reporting date but before the date of authorization of financial statements for the issue are called events after the reporting period. These may be favorable or unfavorable. These are classified into two categories as Adjusting Events

The settlement of a court case after the reporting date, which was initiated during the current year, will provide evidence that the entity has an obligation at year-end therefore, the entity should adjust the financial statements accordingly. The identification of fraud, or any error after the reporting date

A reporting period is the span of time covered by a set of financial statements. The reporting period is typically either for a month, quarter, or year. Organizations use the same reporting periods from year to year so that their financial statements can be compared to the ones produced for prior years

Events after the Reporting Period are those that occur between the end of the reporting period and when the financial statements are authorized for the issue. The date of authorization for the issue is usually taken to be the date when the board of directors authorizes the issue of financial statements

Events after the Reporting Period:
The events which take place after the reporting date but before the date of authorization of financial statements for the issue are called events after the reporting period. These may be favorable or unfavorable.
These are classified into two categories as:

• Adjusting Events
• Non-adjusting Events

Adjusting Events:
Those which take place after the reporting date but before the date of authorization of financial statements for the issue, and provide additional/further evidence related to the conditions which existed at the reporting date.

Non-adjusting Events:
Those which take place after the reporting date but before the date of authorization of financial statements for the issue, and are indicative of the conditions which arose after the reporting date.

Recognition & Measurement

1. Adjusting Events:

The entity is required to account for the adjusting events by adjusting their potential financial impacts in financial statements before these are finalized and issued.

Application Examples:

(a) Any loss which arises after the reporting date because of natural disasters such as fire or flood.
(b) Any sale or purchase of asset after the reporting date.
(c) Sale or discontinuation of a business line after the reporting date.
(d) Fall in value of investment after the reporting date.
(e) Dividend declared after the reporting date
(f) Any business acquisition after the reporting date.
(g) The commencement of a court case due to the events which take place after the reporting date.
(i) Any changes in the tax rates/laws after the reporting date, applicable to previous year

Going Concerned

IAS 10 requires if an event occurs after the reporting date but before the date of authorization of financial statements for the issue and it materially/severely affects the going concern status of the entity such event will always be treated as adjusting event irrespective of the definition it satisfies.
For such an event, the entity will prepare its financial statements on a break-up basis.

Disclosures

IAS 10 requires the entity to disclose the following:

• The date of authorization of financial statements and related authority.
• For Non-adjusting events, the entity should disclose
• The nature of such event and
• Its financial impact