Question

A company car is in a wreck and the company expects to have to pay a substantial sum to persons who were injured. State what type of disclosure, if any, is required under each of the following two circumstances (you can search the FARS database on the type of disclosure). For each circumstance, state your findings (citing the source) and then write a brief summary of what your findings mean. In both cases assume the company’s year-end is December 31.

a) The accident occurred in November

b) The accident occurred in January of the following year. Financial statements will not be issued until February.

Note: Post should be 1 page long

Answer 1

Answer

A.

Provision:

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).

Since it is necessary to make a reasonable provision for the same in determining the quantity of losses and financial statements due to it being crashed in November. According to IAS 37, financial disclosures should also be disclosed in it. However, if the company is unable to determine the amount to be paid as compensation, then it should be treated as a provincial obligation and should be disclosed in the financial statements.

B.

Provision:

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.

Since the accident occured after year end, it should only be disclosed as per IAS 10 in the notes to the accounts.