ACN 3113

TOPIC 7
ACCOUNTING
FOR
PROVISIONS, COMMITMENTS,
CONTINGENCIES
AND
EVENTS AFTER
THE REPORTING PERIOD
CONTENT:
❑Recognition and measurement
of provisions
❑ Accounting for commitments
❑Contingent Assets and
Contingent Liabilities
❑Events after the reporting period
Issue

After reporting period?

Adjusting event? - adjust results in
financial statements
Non-adjusting events? - do not adjust
results in financial statements
Material non-adjusting events? - disclose
Definitions
Events after the reporting period
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.

❑ Reporting period = entity’s financial year end

❑ Date financial statement (FS) authorised
for issue = depends on management structure,
statutory requirements and procedure followed to
prepare FS
(MFRS 110)
Example 1
The management of an entity completes draft financial statements for the
year to 31 December 20X1 on 28 February 20X2.
On 18 March 20X2, the board of directors reviews the financial
statements and authorises them for issue. The entity announces its profit
and selected other financial information on 19 March 20X2.

The financial statements are made available to shareholders and others

on 1 April 20X2. The shareholders approve the financial statements at
their annual meeting on 15 May 20X2 and the approved financial
statements are then filed with a regulatory body on 17 May 20X2.

What period will be considered as events after the reporting period that
may need adjustments?
Source: MFRS 110
Example 2
On 18 March 20X2, the management of an entity authorises
financial statements for issue to its supervisory board.
The supervisory board is made up solely of non-executives
and may include representatives of employees and other
outside interests. The supervisory board approves the
financial statements on 26 March 20X2.
The financial statements are made available to shareholders
and others on 1 April 20X2. The shareholders approve the
financial statements at their annual meeting on 15 May 20X2
and the financial statements are then filed with a regulatory
body on 17 May 20X2.

What period will be considered as events after the reporting

period that may need adjustments?
Source: MFRS 110
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).
Recognition & Measurement
An entity shall adjust the amounts recognised
in its financial statements to reflect
adjusting events after the reporting period.
An entity shall not adjust the amounts
recognised in its financial statements to
reflect non-adjusting events after the reporting
period.
If an entity declares dividends to holders of
equity instruments after the reporting
period, the entity shall not recognise those
dividends as a liability at the end of the
reporting period.
Recognition & Measurement

An entity shall not prepare its financial

statements on a going concern basis if
management determines after the reporting
period either that it intends to liquidate the
entity or to cease trading, or that it has no
realistic alternative but to do so.
Example 3
An entity gives warranties at the time of sale to
purchasers of its products.
On 31 December 20X5 an entity assessed its
warranty obligation to be RM100,000.
Immediately before the 31 December 20X5 annual
financial statements were authorised for issue, the
entity discovered a latent defect in one of its lines of
products (ie a defect that was not discoverable by
Yes, the discovery of a latent defect in one of the product lines immediately before the
reasonable or customary inspection). As a result of
authorization of the annual financial statements for the year ending 31 December 20X5 is
considered an adjusting event.

the discovery, the entity reassessed its estimate of its

In this scenario, the reassessment of the warranty obligation from RM100,000 to RM150,000 is
a new piece of information about a condition that existed at the end of the reporting period (31
December 20X5). This constitutes an adjusting event because it provides additional evidence
warranty obligation at 31 December 20X5 at
about a condition that existed at the end of the reporting period, and it results in a change to
the estimated warranty obligation.

RM150,000. As a result, the financial statements for the year ending 31 December 20X5 should be adjusted
to reflect the updated estimate of the warranty obligation (RM150,000) rather than the original
estimate (RM100,000). Adjusting events are events that provide further evidence of conditions
Is this an adjusting events?
that existed at the end of the reporting period and require adjustments to the financial
statements.
(IFRS, IAS 10)
Example 4
An entity gives warranties at the time of sale to
purchasers of its products.
On 31 December 20X5 an entity assessed its
warranty obligation to be RM100,000.
Immediately before the 31 December 20X5 annual
financial statements were authorised for issue, the
entity discovered a latent defect on 31 March 20X6,
after the 31 December 20X5 annual financial
In this scenario, the discovery of the latent defect on 31 March 20X6 occurred after the 31 December
statements were authorised for issue. In April 20X6
20X5 annual financial statements were authorized for issue. Additionally, the payment of RM150,000 to
transfer the obligation to a third party happened in April 20X6, which is also after the financial

the entity paid RM150,000 to transfer the obligation

statements were authorized.

Since these events occurred after the reporting period (after the financial statements were authorized

to an independent third party.

for issue), they are not considered adjusting events. Adjusting events are those that provide evidence
of conditions that existed at the end of the reporting period (31 December 20X5, in this case). Since the
discovery of the latent defect and the payment to transfer the obligation occurred after this date, they
Is this an adjusting events?
are considered non-adjusting events.

Non-adjusting events do not result in adjustments to the financial statements, but they may require
(IFRS, IAS 10)
disclosure in the notes to the financial statements to provide relevant information to users. In this case,
the subsequent events should be disclosed to ensure the financial statements are not misleading to
users.
Example 5
On 28 February 20X1 an entity’s financial statements for
the year ended 31 December 20X0 were authorised for
issue. The entity sells some products on credit to a
customer before 31 December 20X0. At 31 December
20X0 the entity’s management had no doubt about the
customer’s ability to pay the outstanding trade receivable
of RM200,000. However, in February 20X1, during the
process of finalising the financial statements, the entity is
informed that No, the customer is going into liquidation
the information received in February 20X1 regarding the customer going into liquidation and
because it hasthe significant debt, has20X0.virtually no cash
trade receivables being deemed worthless is considered a non-adjusting event for the
financial statements for the year ended 31 December

inflows, and its The

accounting records
reason it is a non-adjusting are
event is that the poorly
information maintained.
became available after the financial
statements for the year ended 31 December 20X0 were already authorized for issue on 28
Because of this, the end ofthe trade
period (in thisreceivables
case, 31 December 20X0) and are deemed
February 20X1. Adjusting events are events that provide evidence of conditions that existed at
the reporting require adjustments to the
financial statements.
worthless. Since the information about the customer's liquidation and the write-off of the trade receivables
Is this an adjusting events?
was known after the reporting period, it would typically be disclosed in the notes to the financial
statements rather than being reflected as an adjustment to the financial statements for the year
ended 31 December 20X0. The disclosure would provide users of the financial (IFRS,
statements
IASwith10)
important information about subsequent events that could impact the entity's financial position
and performance.
 check all this are correct or not

END OF TOPIC 7
EVENTS AFTER
THE REPORTING PERIOD