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

By definition, events after the reporting period refer to any event, whether favourable or unfavourable, that occurs between the end of the financial reporting period and the period uptill when the financial statemennts are published.

In the case of China, it announced spread of the Virus in November. By that time, there was less information known about the Virus and assuming that the financial statements would have been issued within 45-60 days of the end of reportig period, there are both the possibilities that the management might have have taken the decision to put in a disclosure regarding the impact of Corona Virus on. business or might have even left it out since at that time it was limited only to China and was not entirely in Community spread phase.

For UK, the 1st case appeared in February 2020 and financial reporting period ended on December 31st. This case would more likely have been related to tourism activity. And as such the spread of Corona Virus at that time was limited only to international history of prople. Thus in case of UK, probably no adjustment might have been done. Or seeing the later trend up till the issue of annual report, a disclosure might have been put.

Ghana had its first case in March 2020 and its reporting period ended on March 31st. By this period, Corona Virus had been declared a pandemic with lockdown imposed in many European and Asian nations as well. In this case amounts recorded in financial statements should have been adjusted to reflect adjusting events.