Events after the

reporting period
IAS – 10
Purpose of IAS 10
The financial statements are prepared as at the end of the reporting period, but often the
accounts are not authorised by the directors until some months later. During this time events
may take place within the entity that should be communicated to the shareholders.
IAS 10: Events after the reporting period has two main objectives:
◦ to specify when an entity should adjust its financial statements for events that occur or become
apparent after the reporting period, but before the financial statements are authorised for issue, and
◦ to specify the disclosures that should be given about events that have occurred after the reporting
period but before the financial statements were authorised for issue.

IAS 10 also includes a requirement that the financial statements should disclose when the
statements were authorised for issue, and who gave the authorisation.
Events after the reporting period
Events after the reporting period are those events, both favourable and unfavourable, that
occur between the year end and the date on which the financial statements are authorised
for issue (IAS 10: para. 3).
Two types of events can be identified (IAS 10: para. 3):

Adjusting events Non-adjusting events

Provide evidence of conditions that Indicative of conditions that arose
existed at the end of the reporting after the end of the reporting period
period

Financial statements should be Not adjusted for in financial

adjusted statements, but are disclosed
Accounting for adjusting events after the
reporting period
IAS 10 states that if an entity obtains information about an adjusting event after the reporting
period, it should amend and update the financial statements to allow for this new information.
‘An entity shall adjust the amounts recognised in its financial statements to reflect adjusting
events after the reporting period.’
This might seem common sense. If conditions existed at the end of the reporting period, it is
reasonable to expect that the financial statements should recognise those conditions, even
though the facts did not become known until later.
Examples of adjusting events provided by
IAS 10 include:
the sale of inventory after the reporting date – this gives evidence about the net realisable value
of inventory at the reporting date
the bankruptcy of a customer after the reporting date – this confirms that an allowance is
required against a receivables balance at the reporting date
the discovery of fraud or errors – this shows that the financial statements are incorrect
the settlement after the reporting period of a court case – this confirms the existence and value
of the entity's obligation at the reporting date.
Disclosures for non-adjusting events after
the reporting period
Non-adjusting events after the reporting period are treated differently. A non-adjusting event
relates to conditions that did not exist at the end of the reporting period; therefore the financial
statements must not be updated to include the effects of the event. IAS 10 states quite firmly: ‘An
entity shall not adjust the amounts recognised in the financial statements to reflect non-adjusting
events after the reporting period’.
However, IAS 10 goes on to say that if a non-adjusting event is material, a failure by the entity to
provide a disclosure about it could influence the economic decisions taken by users of the financial
statements. For material non-adjusting events IAS 10 therefore requires disclosure in a note to the
financial statements of:
◦ the nature of the event, and
◦ an estimate of its financial effect, or a statement that such an estimate cannot be made.
Examples of non-adjusting events
provided by IAS 10 include:
▪a major business combination after the reporting date or the disposal of a major subsidiary
▪announcing a plan after the reporting date to discontinue an operation
▪major purchases and disposals of assets after the reporting date
▪destruction of assets by a fire after the reporting date
▪announcing or commencing a major restructuring after the reporting date
▪large changes after the reporting date in foreign exchange rates equity dividends declared or
proposed after the reporting date.
Dividends
IAS 10 also contains specific provisions about proposed dividends and the going concern
presumption on which financial statements are normally based.
If equity dividends are declared after the end of the reporting period, they should not be
recognised as a liability in the statement of financial position, because they did not exist as an
obligation at the end of the reporting period.
Dividends proposed after the end of the reporting period should be disclosed in a note to the
financial statements, in accordance with IAS 1.
Going concern issues arising after the
reporting date
There is an exception to the rule that the financial statements reflect conditions at the
reporting date. If, after the reporting date, management decides to liquidate the entity or
cease trading (or decides that it has no realistic alternative to these actions), the financial
statements cannot be prepared on a going concern basis.
◦ In accordance with IAS 1, management must disclose any material uncertainties relating to events or
conditions that cast significant doubt upon an entity’s ability to continue trading. This applies if the
events have arisen since the reporting period.
◦ If the going concern assumption is no longer appropriate then IAS 10 states that a fundamental
change in the basis of accounting is required. In this case, entities will prepare their financial
statements using the 'break up' basis.
◦ If the financial statements are not prepared on a going concern basis, that fact must be disclosed.
Disclosure
a) An entity discloses the date when the financial statements were authorised for issue and
who gave the authorisation (IAS 10: para 17).
b) If non-adjusting events after the reporting period are material, non-disclosure could
influence the decisions of users taken on the basis of the financial statements.
Accordingly, the following is disclosed for each material category of non-adjusting event
after the reporting period:
i. The nature of the event; and
ii. An estimate of its financial effect, or statement that such an estimate cannot be made. (IAS
10: para 21)
 Example
Delta is an entity that prepares financial statements to 31 March each year. During the year
ended 31 March 20X2 the following events occurred:
a) At 31 March 20X2, Delta was engaged in a legal dispute with a customer who alleged that Delta
had supplied faulty products that caused the customer actual financial loss. The directors of Delta
consider that the customer has a 75% chance of succeeding in this action and that the likely
outcome should the customer succeed is that the customer would be awarded damages of $1m.
The directors of Delta further believe that the fault in the products was caused by the supply of
defective components by one of Delta's suppliers. Delta has initiated legal action against the
supplier and considers there is a 70% chance Delta will receive damages of $800,000 from the
supplier. Ignore discounting.
b) On 10 April 20X2, a water leak at one of Delta's warehouses damaged a consignment of inventory.
This inventory had been manufactured prior to 31 March 20X2 at a total cost of $800,000. The net
realisable value of the inventory prior to the damage was estimated at $960,000. Because of the
damage Delta was required to spend a further $150,000 on repairing and re-packaging the
inventory. The inventory was sold on 15 May 20X2 for proceeds of $900,000. Any adjustment in
respect of this event would be regarded by Delta as material.
Required
◦ Discuss how these events would be reported in the financial statements of Delta for the year ended 31
March 20X2.
 Solution
a)
◦ Under the principles of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision
should be made for the probable damages payable to the customer.
◦ The amount provided should be the amount Delta would rationally pay to settle the obligation at the
end of the reporting period. Ignoring discounting, this is $1m. This amount should be credited to
liabilities and debited to profit or loss.
◦ Under the principles of IAS 37 the potential amount receivable from the supplier is a contingent asset.
Contingent assets should not be recognised but should be disclosed where there is a probable future
receipt of economic benefits – this is the case for the $800,000 potentially receivable from the supplier.

b)
◦ The event causing the damage to the inventory occurred after the end of the reporting period.
◦ Under the principles of IAS 10 Events after the Reporting Period this is a non-adjusting event as it does
not affect conditions at the end of the reporting period.
◦ Non-adjusting events are not recognised in the financial statements, but are disclosed where their
effect is material.