Events after the Balance Sheet Date IAS-10 : recognition and disclosure

Events after the Balance Sheet Date IAS-10, accounting treatment of adjusting or non adjusting events and disclosure

IAS 10 Events after Balance sheet

The purpose of this standard IAS 10 is to determine:

• When an entity should adjust its financial statements for events after the balance sheet date.
• The disclosure that an entity should give about the date when the financial statements were authorized for issue and about events after the balance sheet date.  

• The IAS 10 also requires that an entity should not prepare its financial statements on the basis of ongoing concern if events after the label balance date indicate that future worrying assumptions are incorrect.

Definitions

• Events after the balance sheet date: are those events, both positive and negative, occurring within the balance sheet date and the date on which the financial statements are authorized to be issued.
• Two types of events can be seen:
• Those that give evidence of conditions that existed on the balance sheet date (adjusting events after the balance sheet date).
• An indication of conditions that arose after the balance sheet date (non adjusted events after the balance sheet date)
• In some cases, an entity is required to submit its financial statements to its shareholders for approval afterwards Financial Statements issued. In such cases, financial statements are authorized to be issued on a date Issues, not the date when shareholders receive financial statements.

Example - Authorization of Financial Statements
Business management completes the Financial statements draft for the year to December 31, 20X1 on January 31, 20X2. On March 18, the BOD of the business reviews the financial statements and authorizes the issuance. The financial statements are made available to shareholders and others March 21, 20X2.

Shareholders approve financial statements at their AGM on April 15, 20X2 and financial statements be allowed to be completed executive body April 21, 20X2.

Financial statements Authorized to Issue March 18, 20X2 (release board approval date)

Recognition and measurement.

Arrangements of events after the Balance Sheet Date:

• The entity shall adjust the amounts recognized in its financial statements to reflect the adjustment events after the date of the balance sheet.
• The following are examples of remedial action after a valuation date that requires a business to convert the amounts recognized in their financial statements, or the recognition of previously unknown items.
• Settlement after the balance of the court case confirming that the business was owned current liability on the balance sheet date. The business will adjust any old provision relating to this court case in accordance with IAS 37 Providence, Contingent Liabilities.
• The existence of fraud or error indicates that the financial statements are incorrect.
• Acquisition of information after the balance sheet indicates that the asset is damaged there the balance sheet date, or the amount of the loss suffered previously received the property needs to be recognized impairment loss for that assets to be adjusted.

Client bankruptcy that occurs after the balance sheet date conform loss at the balance sheet date on receivable and need adjustment in receivable.

Non adjusting events after balance sheet date

The entity shall not change the amounts recognized in its financial statements to reflect irrecoverable events after the balance sheet date e.g.

Depreciation on the market value of the investment between the balance sheet date and the financial day statements are authorized to be issued. Market depreciation does not usually relate to the position of the investment on the balance sheet date, but reflects the trends that have arisen thereafter. Therefore, The entity does not change the amounts recognized in its statement of financial statements.

Dividends

• If an entity declares dividends after the balance sheet date, the entity will not see those differentiating factors as a liability on the label's balance sheet.
• If dividends are disclosed after the balance date but before the financial statements are authorized to issue dividends are not recognized as a liability on the balance sheet date because they do not meet the criteria for current obligation in accordance with IAS 37. These type of dividends are disclosed in the notes in accordance with IAS 1 Presentation of Financial Statements.
• Decision about dividends is taken by Directors usually after the balance sheet date on the basis of the financial statements results.

Disclosing IAS -10

• The business will disclose the date on which the financial statements are authorized to be issued and who provided that authorization. If business owners or others have the power to amend financial statements after issue.

Disclosure regarding Conditions at Balance Sheet Date
 If an entity receives information after the balance sheet date about conditions that existed at the balance sheet date, it shall update disclosures that relate to those conditions, in the light of the new information.

Disclosure

• Non adjusting events after the Balance Sheet date.
• If events do not fix after the remaining character date, disclosure can affect the economy users' decisions taken on the basis of financial statements. As a result, the entity will disclose the following for each category of material for adverse events after the balance sheet date:
• Event type.
• Estimate of its financial effect or statement that such an estimate cannot be made.

The following are examples of non adjusting events after the balance sheet date that may result
disclosure:

• Large business combination after the balance sheet date (IFRS 3 business combination requires certain disclosures in such cases) or disposal of a large fund.
• Announcing the plan to to discontinue the operation.
• The destruction of a large production plant by fire after the balance sheet date.
• Announce, or start implementing, major restructuring.
• Access to significant liabilities or contingent liabilities, for example, through issuance important guarantees.
• To initiate a major claim arising only from events that occur after the balance sheet date.
• For major purchases of assets, the division of assets as held for sale in accordance with IFRS-5 (Non-current assets held for sale and deregulation and other disposal of assets).
• Major ordinary share transactions and potential ordinary share transactions after the balance sheet date (IAS 33 Earnings per share requires an entity to disclose a description of such transaction, other than when such transactions involve Capitalization or bonus issues).

Summary of accounting treatment

• Fix: Assets and liabilities where events after the balance sheet date provide further evidence of existing conditions at balance sheet date.
• Do not adjust: However need to disclose important events after the balance sheet date which does not affect the condition of the assets and liabilities at the balance sheet date.
• Dividends: for the period proposed/disclosed after the B/S date but before Financial Statements are approved should be disclosed but not included in liabilities.