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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

CHAPTER 12

EVENTS AFTER THE REPORTING PERIOD

Standard

IAS 10 – Events After the Reporting Period

Definition

Events after the reporting period are those events, favorable and unfavorable, that occur between the end of the
reporting period and the date when the financial statements are authorized for issue. Two types of events can be
identified:

(a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after
the reporting period); and
(b) those that are indicative of conditions that arose after the reporting period (non-adjusting events after the
reporting period).

When are financial statements authorized for issue?

⮚ Generally, when the board or directors reviews the FS and authorizes them for issue.
⮚ In some cases, an entity is required to submit its financial statements to its shareholders for approval after
the financial statements have been issued. In such cases, the financial statements are authorized for issue
on the date of issue by the board of directors, not the date when shareholders approve the financial
statements.

Example:
The management of an entity completes draft financial statements for the year to 31 December 20X1 on
28 February 20X2. On 18 March 20X2, the board of directors reviews the financial statements and
authorizes them for issue. The entity announces its profit and selected other financial information on 19
March 20X2. The financial statements are made available to shareholders and others on 1 April 20X2. The
shareholders approve the financial statements at their annual meeting on 15 May 20X2 and the approved
financial statements are then filed with a regulatory body on 17 May 20X2. When are the financial
statements authorized for issue?

⮚ In some cases, the management of an entity is required to issue its financial statements to a supervisory
board (made up solely of non-executives) for approval. In such cases, the financial statements are
authorized for issue when the management authorizes them for issue to the supervisory board.

Example:
On 18 March 20X2, the management of an entity authorizes financial statements for issue to its
supervisory board. The supervisory board is made up solely of non-executives and may include
representatives of employees and other outside interests. The supervisory board approves the financial
statements on 26 March 20X2. The financial statements are made available to shareholders and others on
1 April 20X2. The shareholders approve the financial statements at their annual meeting on 15 May 20X2
and the financial statements are then filed with a regulatory body on 17 May 20X2. When are the financial
statements authorized for issue?

Recognition and Measurement

A. Adjusting events after the reporting period

⮚ An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events after
the reporting period.

Examples:
(a) the settlement after the reporting period of a court case that confirms that the entity had a present
obligation at the end of the reporting period. The entity does not merely disclose a contingent liability
because the settlement provides additional evidence that would be considered.
(b) the receipt of information after the reporting period indicating that an asset was impaired at the end of
the reporting period, or that the amount of a previously recognized impairment loss for that asset needs to
be adjusted.
(i) the bankruptcy of a customer that occurs after the reporting period usually confirms that the
customer was credit-impaired at the end of the reporting period;
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(ii) the sale of inventories after the reporting period may give evidence about their net realizable
value at the end of the reporting period.
(c) the determination after the reporting period of the cost of assets purchased, or the proceeds from
assets sold, before the end of the reporting period.
(d) the determination after the reporting period of the amount of profit-sharing or bonus payments, if the
entity had a present legal or constructive obligation at the end of the reporting period to make such
payments as a result of events before that date.
(e) the discovery of fraud or errors that show that the financial statements are incorrect.

B. Non-adjusting events after the reporting period

⮚ An entity shall not adjust the amounts recognized in its financial statements to reflect non-adjusting
events after the reporting period. (e.g. decline in fair value of the investments between the reporting
period and the date when the FS are authorized for issue)

Dividends
⮚ If an entity declares dividends to holders of equity instruments (as defined in IAS 32 Financial
Instruments: Presentation) after the reporting period, the entity shall not recognize those dividends as a
liability at the end of the reporting period.

Non-adjusting events after the reporting period

⮚ If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions that users make on the basis of the financial statements. Accordingly, an entity shall
disclose the following for each material category of non-adjusting event after the reporting period:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

The following are examples of non-adjusting events after the reporting period that would generally result in
disclosure:
(a) a major business combination after the reporting period (IFRS 3 Business Combinations requires specific
disclosures in such cases) or disposing of a major subsidiary;
(b) announcing a plan to discontinue an operation;
(c) major purchases of assets, classification of assets as held for sale in accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations, other disposals of assets, or expropriation of major assets by
government;
(d) the destruction of a major production plant by a fire after the reporting period;
(e) announcing, or commencing the implementation of, a major restructuring (see IAS 37);
(f) major ordinary share transactions and potential ordinary share transactions after the reporting period (IAS 33
Earnings per Share requires an entity to disclose a description of such transactions, other than when such
transactions involve capitalization or bonus issues, share splits or reverse share splits all of which are required to
be adjusted under IAS 33);
(g) abnormally large changes after the reporting period in asset prices or foreign exchange rates;
(h) changes in tax rates or tax laws enacted or announced after the reporting period that have a significant effect
on current and deferred tax assets and liabilities (see IAS 12 Income Taxes);
(i) entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees;
and
(j) commencing major litigation arising solely out of events that occurred after the reporting period.

Knowledge Check:

1. Events after the reporting period are favorable or unfavorable events that

a. Occur between the end of the reporting period and the date of the next annual financial statements.
b. Occur between the end of the reporting period and the date of the next interim or annual financial
statements
c. Occur between the end of the reporting period and the date when the financial statements are authorized
for issue
d. Occur between the end of the reporting period and the date of the next interim financial statements

2. Adjusting events are events that

a. Provide evidence of conditions that existed at the end of the reporting period.
b. Are favorable and indicative of conditions that arose after the end of the reporting period.
c. Are unfavorable and indicative of conditions that arose after the end of the reporting period.
d. Provide conditions that existed after the date the financial statements were authorized for issue.
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3. Historia Company is completing the preparation of the financial statements for the year ended December 31,
2018. The financial statements are authorized for issue on March 31, 2019.

● On March 15, 2019, a dividend of P1,750,000 was declared and a contractual profit sharing payment of
P350,000 was made, both based on the profit for the year ended December 31, 2018.

● On February 1, 2019, a customer went into liquidation having owed the entity P340,000 for the past 5
months. No allowance had been made against this debt in the financial statements.

● On March 20, 2019, a manufacturing plant was destroyed by fire resulting to a financial loss of
P2,600,000.

What total amount should be recognized in profit or loss for the year ended December 31, 2018 to reflect the
adjusting events after the end of the reporting period? P690,000