adjusting events and non adjusting events

OK … so “transactions and events” happen every day … every second of every minute of every day. Suppose the reporting date is 31 December. Every transaction and event from 1 January onwards is “an event after the reporting period” – up until the financial statements are authorised for issue (IAS 10).

Some of those transactions and events provide “additional evidence of conditions that existed at 31 December”. For example, if goods in inventory at 31 December are sold in January for less than cost, their NRV as at 31 December must have been less than cost – so inventory is adjusted (written down) as at the reporting date (IAS 2).

Or another example, if there is a contingent liability for pending litigation that cannot be recognised in the SoFP because it cannot be reasonably estimated (you can only recognise in FS what can be reliably measured) but before the financial statements are authorised for issue the amount of the liability becomes known – e.g. because the matter is settled – the financial statements can be adjusted.

But clearly not every transaction/event in January will tell you something more about what was at the reporting date. For example, a cash receipt from a customer who owed money at the reporting date only confirms what you already know – that the customer was a trade receivable. There is no additional evidence to suggest that the trade receivable should be adjusted to a different amount. But if the customer is declared bankrupt/in administration after the reporting date that is additional evidence of the customer’s inability to pay – so trade receivables would be written down for the expected loss.

Please specify if there are particular other examples that you still find confusing.