Paragraph 3 of AASB 110 states:

Events after the reporting period are those events, favourable and unfavourable,
that occur between the end of the reporting period and the date when the
financial statements are authorised for issue. Two types of events can be
identified:
(a) those that provide evidence of conditions that existed at the end of the
reporting period (adjusting events after the reporting period); and
(b) those that are indicative of conditions that arose after the reporting period
(non-adjusting events after the reporting period).
As can be seen from the above, AASB 110 refers to ‘adjusting events’ and ‘non-
adjusting events’.
An adjusting event (which has also been commonly referred to as a type 1 event) is one
that provides additional evidence of, or further elucidates, a condition that existed as at
the end of the reporting period. It would be recognised in the financial statements either
by being brought to account—if it relates to an item which would itself be brought to
account—or by being included by way of a note—if it relates to an item that would
usually be recognised only by way of a note, such as a contingent liability. As paragraph
8 of AASB 110 states:
An entity shall adjust the amounts recognised in its financial statements to
reflect adjusting events after the reporting period.
A non-adjusting event (which has commonly been referred to as a type 2 event) is an
event that occurred after the end of the reporting period, and therefore creates a new
condition. The financial statements themselves would not be adjusted (unless the
subsequent event indicates that the entity is no longer a going concern), but note
disclosure could be required, depending upon the materiality of the event. As paragraph
10 of AASB 110 states:
An entity shall not adjust the amounts recognised in its financial statements
to reflect non-adjusting events after the reporting period.
In relation to the note disclosures required by AASB 110 in relation to non-adjusting
events, paragraph 21 of AASB 110 states:
If non-adjusting events after the reporting period are material, nondisclosure
could influence the economic decisions of users taken on the basis of the
financial report. Accordingly, an entity shall disclose the following for each
material category of non-adjusting 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.

If an event relates to a period after the reporting period, when and why should it be
detailed in the notes to the financial statements?

Such an event would be a non-adjusting (or type 2) event. Non-adjusting events should
be disclosed in the notes to the financial statements with a description of the event and,
 where possible, the financial effect of the event. Because non-adjusting events do not
relate to any conditions existing at the end of the reporting period, it would be
inappropriate to adjust the statement of financial position (which provides the financial
position as at the end of the reporting period), or the statement of comprehensive
income (which provides the profit or loss and total comprehensive income for a period
of time at the end of the reporting period). However, it should be stressed that one
exception to this rule relates to events that bring into question the going concern
assumption of the entity. If something happens after the end of the reporting period that
causes the entity to no longer appear to be a going concern, then paragraph 14 of AASB
110 requires that the financial statements be adjusted. Further, paragraph 15 states:
Deterioration in operating results and financial position after the reporting
period may indicate a need to consider whether the going concern
assumption is still appropriate. If the going concern assumption is no longer
appropriate, the effect is so pervasive that this Standard requires a
fundamental change in the basis of accounting, rather than an adjustment to
the amounts recognised within the original basis of accounting.
Even though non-adjusting events do not relate to the financial period in question, it
would be inappropriate and misleading not to advise financial statement readers of
material information that has come to light in the period since the end of the reporting
period, but prior to the date when the financial statements are authorised for issue.
Omission of such information may, if considered material, cause them to make resource
allocation decisions that they may not otherwise have made.
It should also be noted that Section 299 of the Corporations Act requires the directors
to provide information about significant after-reporting-date events within their
Directors’ Report.

Determine whether the following events require adjustment to the financial statements
or disclosure by way of a note to the financial statements?

(a) Loss of a major customer after the end of the reporting period. No amount is
owning at the end of the reporting period.

(b) A debtor owes a material amount and becomes insolvent after the reporting period.

(c) Flood loss after the end of the reporting period.

(d) Settlement of a negligence claim after the reporting period, which relates to
operations undertaken before the end of the financial period.

(e) Declaration of dividends after the end of the reporting period.

(a) To the extent that this does not impact the assumption that the entity is a going
concern, then this is a non-adjusting event that should be disclosed by way of a
note to the financial statements. If the event is of such magnitude that the going
concern basis of valuation is no longer appropriate, then consistent with
paragraph 14 of AASB 110, adjustments would be made directly to the financial
statements.
(b) To the extent that the new information provides further information about a
condition that existed at the end of the reporting period (being that the debt was
doubtful), then the accounts should be adjusted to reflect the fact that the debt
is in doubt. That is, it is an adjusting (or type 1) event. In relation to this
example, external auditors typically review receipts subsequent to the end of the
reporting period, or search for information about subsequent customer failures,
to determine whether closing allowances for doubtful debts appear adequate.
Again, we would need to consider whether the event impacts the going concern
assumption.
(c) This is a non-adjusting (type 2) event, which should be documented in the notes
to the financial statements to the extent that it is material.
(d) This is an adjusting event that provides information about a debt which had been
incurred prior to the end of the reporting period, and adjustment to the financial
statements will be required.
(e) There can be a note to the financial statements, but the dividend declared after
the end of the reporting period shall not be recognised in that current period’s
financial statements. As paragraph 12 of AASB 110 states:
If an entity declares dividends to holders of equity instruments (as
defined in AASB 132 Financial Instruments: Presentation) after the
reporting period, the entity shall not recognise those dividends as a
liability at the end of the reporting period.
(a) Prior to the release of AASB 110, dividends recommended after the end of the reporting
period were included in the financial statements, even though the declaration
was made after the reporting period. This is no longer the case. Paragraph 12 of
AASB 110 now requires:
If an entity declares dividends to holders of equity instruments (as
defined in AASB 132 Financial Instruments: Presentation) after the
reporting period, the entity shall not recognise those dividends as a
liability at the end of the reporting period.
Even though the financial statements would not incorporate the dividends,
disclosure in the notes to the financial statements would be required.
(b) This would be considered to be an adjusting event requiring adjustments to the
financial statements. At 30 June 2018 the financial statements should include a
provision to cover the costs associated with the intended closure of the division.
The actual costs incurred elucidate a condition that existed at the end of the
reporting period.
(c) This is a type 2 event that should be disclosed in the notes to the financial
statements.
(d) This would be considered to be an adjusting event necessitating adjustments to
the financial statements. At the end of the reporting period there would have
been some doubt about the ability of the Eco-Friendly Leisure Company to pay
its debts. The information about the insolvency elucidates a condition that
existed at the end of the reporting period. The amount of $600 000 would be
treated as a bad debt expense. Another issue that warrants consideration is
whether the insolvency of Eco-Friendly Leisure Company will impact the
applicability of the going-concern assumption of Lombok Ltd. If the loss of this
major customer is likely to affect whether or not Lombok is a going concern,
then the basis of valuation of the financial statement would need to be adjusted.
(e) This would be treated as an adjusting event, and the financial statements should
be adjusted accordingly. At the end of the reporting period, Lombok Ltd had a
claim against the supplier. The out-of-court settlement clarifies the value of the
claim.