IAS 10 Events after the reporting period

CIMA-F1 · Chapter 9

IAS 10 Events after the reporting period

The reporting date is not the day the accounts are finished. Weeks or months pass between the year end and the day the directors approve the financial statements, and things happen in that window — a customer goes under, a court case is decided, a warehouse burns down. IAS 10 Events after the Reporting Period decides which of those events change the numbers and which are merely disclosed.

Events after the reporting period

Events, favourable and unfavourable, that occur between the reporting date and the date on which the financial statements are authorised for issue.

Note where the window closes. It is the date of authorisation — the day the directors approve the statements — not the date they are published, sent to shareholders, or laid before a general meeting. Anything happening after authorisation is next year's problem.

This recording predates the 2027 syllabus. It is sound on the adjusting/non-adjusting test and the worked example; carry three things with you.

The court case: where the lecture says to make a provision for the $80,000, the case has already been decided, so the amount is certain: recognise a liability of $80,000 and the matching expense (see the answer to the example).

Wording: “statement of financial position date” is the reporting date, and the earnings-per-share aside is outside F1, as the lecture itself says.

Notes-only: going concern, dividends declared after the reporting date, the three disclosures, the boundary with IAS 8, and where the amounts land in the 2027 statements (“Where this appears in the financial statements”).

YouTube video

1 Adjusting and non-adjusting events

Every event in the window is one or the other, and a single question separates them: did the condition already exist at the reporting date?

Adjusting events	Non-adjusting events
Provide evidence of conditions that existed at the reporting date.	Are indicative of conditions that arose after the reporting date.
The amounts recognised in the financial statements are adjusted — the event tells you what the year-end position really was.	The amounts are not adjusted. If the event is material, the nature of the event and an estimate of its financial effect are disclosed in the notes.
Typical examples Settlement of an outstanding court case, confirming that an obligation existed Bankruptcy of a customer, confirming that a year-end receivable was irrecoverable Sale of inventory below cost, giving evidence of its net realisable value at the year end Determination after the year end of the price of an asset bought or sold before it Discovery of fraud or error showing that the financial statements are wrong	Typical examples A fall in the market value of investments after the year end A major purchase or disposal of assets Announcing a discontinued operation or a restructuring Destruction of an asset by fire or flood An issue of shares

Work through the test in words before you touch the numbers. "The customer went bankrupt in February — but was the receivable already bad at 31 December? Yes; the customer's finances did not collapse overnight. Adjust." "The fire happened in February — was the building already destroyed at 31 December? No. Do not adjust." The date of the event never decides it; the date of the condition does.

2 Two cases with their own rules

2.1 Going concern

If, after the reporting date, management determines that it intends to liquidate the entity or to stop trading, or that it has no realistic alternative but to do so, the financial statements must not be prepared on a going-concern basis. This is not an adjustment to one figure: the whole basis of preparation changes, because a set of accounts prepared on a going-concern basis would no longer be a fair presentation.

A serious deterioration in results or in the entity's financial position after the reporting date is therefore always worth a second look — not because it is an adjusting event in itself, but because it may point to a going-concern problem that is.

2.2 Dividends

Dividends declared after the reporting date are not recognised as a liability at the reporting date. No obligation existed at the year end — the entity could still have chosen not to declare them — so the definition of a liability is not met. The dividend is disclosed instead, and recognised in the following period.

An error relating to a prior period that comes to light after the reporting date is not an event after the reporting period at all. It is a prior-period error, corrected retrospectively under IAS 8 (Chapter 4). Keep the two apart: IAS 10 is about new information arriving about this year's position; IAS 8 is about getting an earlier year wrong.

3 Disclosure

Three disclosures are required, and the first is easy marks because students forget the chapter has any disclosure requirements at all:

The date on which the financial statements were authorised for issue and who gave that authorisation — and, where the entity's owners or others have the power to amend the statements after issue, that fact
For each material non-adjusting event: the nature of the event, and an estimate of its financial effect — or a statement that such an estimate cannot be made
Where information received after the reporting date changes what is known about conditions that existed at that date, the related disclosures are updated as well as the amounts

Events after the reporting period

The following events took place between the 31 December 20X5 reporting date and the date the financial statements were authorised for issue.

The company makes an issue of 100,000 shares which raises $200,000 shortly after the reporting date.
A legal action had been brought against the company for breach of contract prior to the year end. The outcome was decided shortly after the reporting date, and as a result the company will have to pay costs and damages totalling $80,000. No provision has currently been made for this event.
Inventory included in the accounts at the year end at cost $25,000 was subsequently sold for $15,000.
A building in use at the reporting date and valued at $500,000 was completely destroyed by fire. Only half of the value was covered by insurance; the insurance company has agreed to pay $250,000 in accordance with the company's policy.

Explain how each of the above items should be treated in the financial statements for the year ended 31 December 20X5.

Events after the reporting period

1 Share issue — non-adjusting

The shares did not exist at the reporting date and nothing about the issue tells you anything about the year-end position, so no condition existed at 31 December 20X5. The financial statements are not adjusted. The issue is material, so its nature and the $200,000 raised are disclosed in the notes.

2 Legal action — adjusting

The breach of contract, and therefore the obligation, existed at the reporting date; the court's decision is evidence of what that obligation was worth. The financial statements are adjusted: recognise a liability of $80,000 and the matching expense, reducing profit for the year by $80,000.

3 Inventory sold below cost — adjusting

Selling the inventory for $15,000 is evidence of its net realisable value at the reporting date, so the condition existed then. Inventory is written down from cost of $25,000 to net realisable value of $15,000 — a reduction of $10,000 in both inventory and profit (Chapter 10).

4 Building destroyed by fire — non-adjusting

The building was intact at the reporting date; the fire is a condition that arose afterwards. Neither the building nor the insurance recovery is adjusted — the building stays at $500,000 in the statement of financial position. The event is plainly material, so the notes disclose its nature and its financial effect: an asset carried at $500,000 destroyed, against which $250,000 of insurance has been agreed, a net loss of $250,000.

One further point on item 4, which is what separates a good answer from a bare pass: a loss of this size prompts the question whether the entity remains a going concern. If it does not, the financial statements would have to be prepared on a different basis altogether — which would change everything, not one number.

4 Where this appears in the financial statements

IAS 10 is unchanged by IFRS 18, and it adds no lines of its own. What it does is decide whether an amount already in the statements moves:

an adjusting event changes an amount that is already recognised, so it lands in whichever IFRS 18 category that amount already belongs to — the inventory write-down and the legal claim above are both operating expenses, above operating profit (Chapter 5)
a non-adjusting event changes nothing on the face of any statement; it appears only in the notes
the authorisation-date disclosure sits with the general information about the financial statements, alongside the entity name, reporting period and presentation currency

5 Test your knowledge

Two quick checks before you move on: work through the flashcards to fix this chapter’s terms and definitions, then sit the objective questions for exam-style practice. Both mark themselves and explain the answers as you go.

Answer the questions one at a time. Your progress is saved so you can leave and come back.

Open chapter practice