Events occurring between the end of a reporting period and the date of authorising financial statements for issue are referred to as events after the reporting period. They can also be known as ‘post balance sheet events’ or ‘subsequent events’.
Adjusting events after the reporting period
Adjusting events are those that provide evidence of conditions existing at the reporting period’s end. Consequently, entities should adjust figures and disclosures in the financial statements to account for these events. Such events often present challenges, especially when financial statements are already drafted and investor presentations are in place. Common adjusting events include:
- Litigation developments tied to events before the reporting period’s end. For instance, a court decision might necessitate adjustments to an already recognised provision or the creation of a new one (IAS 10.9(a)).
- Information that indicates impairment of receivables, like learning about a debtor’s financial troubles, often confirms the receivable was credit-impaired at the reporting date (IAS 10.9(b)(i)).
- Selling inventories below their carrying amount indicates their net realisable value at the reporting date (IAS 10.9(b)(ii)).
- Discoveries of fraud or errors revealing inaccuracies in financial statements (IAS 10.9(e)).
Non-adjusting events after the reporting period
Non-adjusting events don’t provide evidence of conditions that existed by the reporting period’s end. Figures in financial statements remain unchanged due to non-adjusting events, although disclosures might be needed (IAS 10.21). The only time such an event affects reported figures is if it prevents management from preparing the financial statements on a going concern basis (IAS 10.14-16).
Material non-adjusting events that might require financial statement disclosure include:
- Business combinations or disposal of subsidiaries (IAS 10.22(a)).
- Asset purchases or sales, classifying assets as held for sale or discontinuing operations (IAS 10.22(b-c)). Note, however, that asset disposal may provide evidence about the fair value at the reporting date.
- Restructuring (IAS 10.22(e)).
- Declaring dividends and other equity dealings (IAS 10.22(f)).
- Unusually significant post-reporting changes in market prices of assets or foreign exchange rates with material effects (IAS 10.22(g)).
- Post-reporting changes in legislation (IAS 10.22(h)). While IAS 10 primarily mentions tax law, this rule extends to legal changes more broadly.
- Undertaking significant commitments or contingent liabilities (IAS 10.22(i)).
- Starting major litigation based solely on post-reporting events (IAS 10.22(j)).
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Authorising financial statements for issue
The authorisation process for issuing financial statements varies based on an entity’s management structure, statutory mandates, and the procedures in place for drafting and finalising these statements. In certain situations, an entity might need to present its financial statements to shareholders for approval after they have been released. However, the authorisation date remains the issue date, not the approval date by shareholders.
For some entities, management must present the financial statements to a supervisory board consisting only of non-executive members. In these instances, the statements are deemed authorised for issue once the management sends them to this board. It’s crucial to note that events following the reporting period encompass all occurrences up to the authorisation date of the financial statements, even if such events happen after the public announcement of profits or other key financial data (IAS 10.4-7).
Entities should disclose the date of financial statement authorisation and the authorising party. If potential amendments to the financial statements might arise later, for instance, during an AGM, this should be disclosed as well (IAS 10.17-18).