Chapter 20: Events after the reporting period

The IAS 10 defines events after the reporting period as:

Events, favourable and unfavorable, that occur between the end of the reporting
period and the date when the financial statements are authorised for issue.

The date that the financial statements are authorised for issue is the date that they
are signed by the owners and are issued outside the business.

There are two classes of event that you need to consider:

• Events that provide additional evidence of conditions that existed at the end of
the reporting date (adjusting events).

The discovery after the year end of a fall in value of a property that took place prior
to the year end.

The amount receivable from a customer who has become bankrupt after the year end.

Sale of inventory for less than its cost after the year end.

Confirmation of an amount payable in respect of a legal case that is settled after the
year end.

Discovery of a fraud or error affecting the financial statements (i.e.; discovery that
credit controller has stolen cash).

A receivable written off as irrecoverable before the period end but the customer pays
in full after the year end.

Inventory destroyed by a warehouse fire two days before the year end.

A non-adjusting event that affects going concern becomes an adjusting event.

Fire, flood or other catastrophe that destroys a significant part of the business so
that it can no longer continue after the year end.

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• Events that are indicative of events that arose after the reporting date or events
that does not exist at the reporting date (non-adjusting events).

The acquisition or disposal of non-current assets after the year end.

Fire, flood or other catastrophe that destroys assets after the year end.

The announcement of plans to close down part of the business.

Law suits against the business, or started by the business, that begin after the year end.

The announcement of a restructuring plan after the year end.

The value of an investment falls between the reporting date and the date the financial
statements are issued.

Dividends declared after the year end, but before the accounts are issued

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 Practice Questions:

1 Which of the following is the correct definition of an adjusting event after the
reporting period?

A An event that occurs between the reporting date and the date on which the
financial statements are authorised for issue that provides further evidence of
conditions that existed at the reporting date.
B An event that occurs between the reporting date and the date on which the
financial statements are authorised for issue that provides evidence of
conditions that arose subsequent to the reporting date.
C An event that occurs after the date the financial statements are authorised
for issue that provides further evidence of conditions that existed at the
reporting date.
D An event that occurs after the date the financial statements are authorised
for issue that provides evidence of conditions that arose subsequent to the
reporting date.

2 Which of the following material events after the reporting period and
before the financial statements are approved by the directors should be
adjusted for in those financial statements?

(1) A valuation of property providing evidence of impairment in value at the

reporting period
(2) Sale of inventory held at the end of the reporting period for less than cost
(3) Discovery of fraud or error affecting the financial statements
(4) The insolvency of a customer with a debt owing at the end of the reporting
period which is still outstanding

A All of them

B 1, 2 and 4 only

C 3 and 4 only

D 1, 2 and 3 only

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3 The draft financial statements of a limited liability company are under
consideration. The accounting treatment of the following material events after
the reporting period needs to be determined.

(1) The bankruptcy of a major customer, with a substantial debt outstanding

at the end of the reporting period
(2) A fire destroying some of the company's inventory (the company's going
concern status is not affected
(3) An issue of shares to finance expansion
(4) Sale for less than cost of some inventory held at the end of the reporting
period

According to IAS 10 Events after the reporting period, which of the

above events require an adjustment to the figures in the draft financial
statements?

A 1 and 4 only

B 1, 2 and 3 only

C 2 and 3 only

D 2 and 4 only

4 In finalising the financial statements of a company for the year ended 30 June
20X4, which of the following material matters should be adjusted for?

(1) A customer who owed $180,000 at the end of the reporting period went
bankrupt in July 20X4.
(2) The sale in August 20X4 for $400,000 of some inventory items valued in
the statement of financial position at $500,000.
(3) A factory with a value of $3,000,000 was seriously damaged by a fire in
July 20X4. The factory was back in production by August 20X4 but its
value was reduced to $2,000,000.
(4) The company issued 1,000,000 ordinary shares in August 20X4.

A All four items

B 1 and 2 only

C 1 and 4 only

D 2 and 3 only

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5 Which of the following events occurring after the reporting period are
classified as adjusting, if material?

(1) The sale of inventories valued at cost at the end of the reporting period for a
figure in excess of cost.
(2) A valuation of land and buildings providing evidence of an impairment in
value at the year end.
(3) The issue of shares and loan notes.
(4) The insolvency of a customer with a balance outstanding at the year end.

A 1 and 3 only

B 2 and 4 only

C 2 and 3 only

D 1 and 4 only

6 Which of the following events between the reporting date and the date the
financial statements are authorised for issue must be adjusted in the
financial statements?

(1) Declaration of equity dividends

(2) Decline in market value of investments
(3) The announcement of changes in tax rates
(4) The announcement of a major restructuring

A 1 only

B 2 and 4

C 3 only

D None of them

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7 IAS 10 Events after the reporting period regulates the extent to which events after
the reporting period should be reflected in financial statements.

Which one of the following lists of such events consists only of items that,
according to IAS 10, should normally be classified as non-adjusting?

A Insolvency of an account receivable which was outstanding at the end

of the reporting period, issue of shares or loan notes, an acquisition of
another company.

B Issue of shares or loan notes, changes in foreign exchange rates,

major purchases of non-current assets.

C An acquisition of another company, destruction of a major non-current

asset by fire, discovery of fraud or error which shows that the financial
statements were incorrect.
D Sale of inventory which gives evidence about its value at the end of
the reporting period, issue of shares or loan notes, destruction of a
major non-current asset by fire.

8 The financial statements of Overexposure Co for the year ended 31 December

20X1 are to be approved on 31 March 20X2. Before they are approved, the
following events take place.

(1) On 14 February 20X2 the directors took the strategic decision to sell their
investment in Quebec Co despite the fact that this investment generated
material revenues.
(2) On 15 March 20X2, a fire occurred in the eastern branch factory which
destroyed a material amount of inventory. It is estimated that it will cost
$505,000 to repair the significant damage done to the factory
(3) On 17 March 20X2, a customer of Overexposure Co went into liquidation.
Overexposure has been advised that it is unlikely to receive payment for any of
the outstanding balances owed by the customer at the year end

How should these events reflected in the financial statements at 31 December

20X1?

Adjust Disclose Do nothing

A 3 2, 3 3

B 2, 3 1 -

C 3 1, 2 -

D 2 3, 1 -

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