Post balance sheet event — OpenTuition Forums

Eetchells14y ago

Dear Nike

I understand that adjusting events are those events that provide evidence of the conditions that exist at the balance sheet date while non adjusting events are indicative of the conditions that exists after the balance sheet date.

But I am confused about what are the conditions referred to.

For example, in a question, as at the year ended 31/12/2011, the balance due to a trade creditor was $30,000. However, due to some financial difficulties of the company, the company negotiated with the creditor who agreed to reduce the payable amount to HK$$20,000 subsequently on 15/3/2012.

The question is: at the year end 31/12/2011, should the trade payable balance be reduced to $20,000 as an adjusting event, or simply leave the balance at $30,000 , with the reduction of the payable balance disclosed as an non-adjusting event?

Would you mind giving me some guidance on this? Thanks.

MikeLittleTutor14y ago#1

Hi

What an interesting question! The "normal" question in this area would involve a receivable which, subsequent to the year end, now finds itself in financial difficulties.

In that situation, you would re-measure the debt as at the year end in so far as it has not been settled subsequent to the year end.

Now, your question! This is where we, as a company, are experiencing financial difficulties. My instant reaction is to think "going concern". It appears to me that the financial statements as at the year end need ( probably ) to be re-prepared under a non-going-concern basis. If, in fact, the company IS a going concern, but we simply needed to renegotiate a debt to buy a little time until, for example, the promised government funding was received, then we could justify making no adjustment - but, as an auditor, check the subsequent receipt of the ( for example ) delayed government funding.

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