Hi everyone!
Wishing you a happy new month filled with happiness & God's blessings.
We shall study a simple & interesting standard today, IAS 10 - events after the reporting period.
Every company has a reporting date i.e the financial year end which it prepares its financial statements to. There is also, another day, on which management authorizes or approves these financial statements.
Sometimes, after preparing the financial statements, certain events still occur before the prepared statements are authorized by management. What do you do about such events? Do you go back to adjust these events or not?
The standard specifies 2 events after the reporting period:
• Adjusting Events - These are events that provide evidence of conditions that existed at the reporting date. i.e these events have actually existed as at the date of preparing financial statements e.g impairment of an asset as at reporting period.
• Non-adjusting Events - these events indicate conditions that existed after the reporting period. i.e. These events did not exist as at the reporting date. E.g acquisition of a new subsidiary after the reporting period.
Now how do we treat adjusting and non adjusting events?
Consider this scenario, it is your turn to host your friends in your monthly meetings. You go shopping for items to bake a sponge cake and then receive a reminder text asking you to bake coconut cake. Hence, you quickly switch to shopping for items for coconut cake as they requested. After baking, you get another text, saying cupcakes would be preferred. Since you have baked coconut cake already, you believe you can't waste it. Hence, you would explain to them. You know they wouldn't mind so you don't have to bake the cupcakes.
In the scenario above, you had to switch from shopping for sponge cake items to cocunut cake items, since you were still shopping when the reminder came, you hadn't baked yet. Similarly, adjusting events discovered before the authorization of financial statements, MUST be adjusted for in the accounts.
However, non-adjusting events are NOT TO BE adjusted in the accounts. They are to be DISCLOSED in the notes. Like the earlier example, you ddnt bake the cupcakes, since you got the text after baking coconut cake. You just had to explain to them.
In simple terms,
• Adjusting Events - Adjust the accounts.
• Non-adjusting events - Disclose in the notes.
Other Notes:
• Proposed Dividends - the standard states that, proposed dividend is not an obligation as at the reporting date. It is only "proposed". Hence, it is non-adjusting and should simply be disclosed in the notes.
• Going Concern Considerations - After the reporting date, if an event occurs or something happens that threatens going concern or indicates that the company may wind up or liquidate. The company must restate its accounts on "Break-up Basis" not Going concern.
• Disclosure Requirement: Disclose the nature of the events and an estimate of the financial effect OR a statement that its impossible to estimate the financial effect.
DAILY CHALLENGE: Come up with 3 examples of adjusting and non-adjusting events.
For further clarifications, mail: nneomakristen@gmail.com
Have a blessed day!
Wishing you a happy new month filled with happiness & God's blessings.
We shall study a simple & interesting standard today, IAS 10 - events after the reporting period.
Every company has a reporting date i.e the financial year end which it prepares its financial statements to. There is also, another day, on which management authorizes or approves these financial statements.
Sometimes, after preparing the financial statements, certain events still occur before the prepared statements are authorized by management. What do you do about such events? Do you go back to adjust these events or not?
The standard specifies 2 events after the reporting period:
• Adjusting Events - These are events that provide evidence of conditions that existed at the reporting date. i.e these events have actually existed as at the date of preparing financial statements e.g impairment of an asset as at reporting period.
• Non-adjusting Events - these events indicate conditions that existed after the reporting period. i.e. These events did not exist as at the reporting date. E.g acquisition of a new subsidiary after the reporting period.
Now how do we treat adjusting and non adjusting events?
Consider this scenario, it is your turn to host your friends in your monthly meetings. You go shopping for items to bake a sponge cake and then receive a reminder text asking you to bake coconut cake. Hence, you quickly switch to shopping for items for coconut cake as they requested. After baking, you get another text, saying cupcakes would be preferred. Since you have baked coconut cake already, you believe you can't waste it. Hence, you would explain to them. You know they wouldn't mind so you don't have to bake the cupcakes.
In the scenario above, you had to switch from shopping for sponge cake items to cocunut cake items, since you were still shopping when the reminder came, you hadn't baked yet. Similarly, adjusting events discovered before the authorization of financial statements, MUST be adjusted for in the accounts.
However, non-adjusting events are NOT TO BE adjusted in the accounts. They are to be DISCLOSED in the notes. Like the earlier example, you ddnt bake the cupcakes, since you got the text after baking coconut cake. You just had to explain to them.
In simple terms,
• Adjusting Events - Adjust the accounts.
• Non-adjusting events - Disclose in the notes.
Other Notes:
• Proposed Dividends - the standard states that, proposed dividend is not an obligation as at the reporting date. It is only "proposed". Hence, it is non-adjusting and should simply be disclosed in the notes.
• Going Concern Considerations - After the reporting date, if an event occurs or something happens that threatens going concern or indicates that the company may wind up or liquidate. The company must restate its accounts on "Break-up Basis" not Going concern.
• Disclosure Requirement: Disclose the nature of the events and an estimate of the financial effect OR a statement that its impossible to estimate the financial effect.
DAILY CHALLENGE: Come up with 3 examples of adjusting and non-adjusting events.
For further clarifications, mail: nneomakristen@gmail.com
Have a blessed day!
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