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Dear tutor,
How would you go about approaching and solving Q5 (on FRS 21, Events after the balance sheet date) on the Dec 2008 paper? I hit a stumbling block when trying to understand the question and answer yesterday.
Regards
Si80
1 The springs were defective at period end, so that would be an adjusting event: the problem was present at period end even though we only found out about it later. Adjustments in the balance sheet and income statement are needed eg to write down the inventory.
2 The accident was solely and even after period end, so is a non-adjusting event, but it probably should be disclosed if thought necessary for good understanding of the FS eg if there could be material consequences
The ACCA model answer sets out well the further work that would be needed.
Even if an audit report is signed and the accounts are distributed, if they are found to be incorrect (either on the face of the BS or IS, or in the notes) attempts should be made to let members know. Therefore, if the error was material, accounts should be reissued with an appropriate audit report. There would be no question of adjusting the BS and IS, but if the fine were really large, for example, there might be going concern issues.
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