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Hi
I need to ask that if the client decided to issue the share capital before the year end but actually issued the capital after the reporting date will it be adjusted or disclosed.
Thanks
The issue of shares post-y/e is NON-adjusting EVENT because it does not provide evidence of a condition that EXISTED at the reporting date. At the reporting date the shares had not been issued. A board decision to issue shares does not increase equity at the reporting date – it would be wholly within the control of the directors to change their minds any time before the actual issue. This cannot be recognised/adjusted but should be disclosed in the notes to the financial statements (if material to the users).
Ok good! but what if the directors issued the capital before Y/E and for some reason it is not reflected in the financial statements at Y/E and the Auditor come to know about the issue after the reporting period what happens then?
It would be a misstatement – both cash (the other side of the entry) and equity would be understated. It is difficult to image that the directors would want the financial statements to include such an error, but if they refused to correct it and it is material the audit would modify the opinion (“except for” qualification) as for any other material misstatement.
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