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Hello Chris!
Which TWO of the following events which occur after the reporting date of a company but before the financial statements are authorised for issue are classified as adjusting events in accordance with IAS 10 Events after the reporting period?
a.A change in tax rate announced after the reporting date, but affecting the current tax liability
b.The discovery of a fraud which had occurred during the year
c.The determination of the sale proceeds of an item of plant sold before the year end
d.The destruction of a factory by fire-The answer is b and c.
-What’s wrong with option a?
At the end of the reporting period, the condition of paying taxes already existed at the end of the reporting period. So, a change in tax rate affecting the current tax liability should be adjusted.-Kindly identify where I am getting things wrong.
Thanks.
Hi,
Although we were obliged to pay tax at the reporting date, the new tax rate did not exist at the reporting date and therefore the announcement of the new rate does not adjust the balance at the reporting date. Think more about the tax rate in existence at the reporting date and not the tax balance calculated.
IAS 12 also backs this up in that we can only use the tax rate that has been enacted at the reporting date.
Thanks
Hello.
Thanks for replying
“Although we were obliged to pay tax at the reporting date, the new tax rate did not exist at the reporting date”
-I’am still confused here. If at the end of the reporting period,I’ve got taxes to pay and at the same time, after the reporting we’ve got a change in tax affecting the current tax liability.
If we do not adjust the tax amount reported at the end of the reporting date, are we not over or underestimating the tax amount?Thanks
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