OBJECTIVE
The objective of this standard is to set out the circumstances in which an entity should adjust its financial statements for events that occur after the Balance Sheet Date but before the Financial Statements are approved by the Board of Directors. The standard also sets out the disclosures to be made about these events.
The standard indicates that an entity should not prepare its financial statements on a going concern basis if events after the balance sheet clearly indicate that this is no longer appropriate.
DEFINITIONS
Events after the Reporting Period are those events, favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue. Two types of Events can be identified:
- Those that provide evidence of conditions that existed at the balance sheet date (adjusting Events after the Reporting Period); and
- Those that are indicative of conditions that arose after the balance sheet date (Nonadjusting events after the balance date).
RECOGNITION AND MEASUREMENT
ADJUSTING EVENTS AFTER THE REPORTING PERIOD
An entity shall adjust the amounts recognised in its financial statements to reflect adjusting Events after the Reporting Period. The following are examples of adjusting events that require the entity to adjust the amounts shown in the financial statement:
- Settlement of a Court case after the Balance sheet date which confirms that the entity has a present obligation
- Discovery of fraud or errors that show the financial statements are incorrect
- Non-Current Assets – The subsequent determination of the purchase price or of the proceeds of sale of assets purchased or sold before the year-end
- Property – A valuation which provides evidence of a permanent diminution in value.
- Investments – The receipt of a copy of the financial statements or other information in respect of any company which provides evidence of a permanent diminution in the value of a long-term investment.
- Inventory – The receipt of proceeds of sales after the balance sheet date or other evidence concerning the net realisable value of inventory.
- Receivables – The renegotiation of amounts owing by receivables, or the bankruptcy of a customer.
- Taxation – The receipt of information regarding rates of taxation.
- Claims – Amounts received or receivable in respect of insurance claims which were in the course of negotiation at the balance sheet date.
NON-ADJUSTING EVENTS AFTER THE REPORTING PERIOD
An entity shall not adjust the amounts recognised in its financial statements to reflect nonadjusting Events after the Reporting Period.
- A major business combination after the balance sheet or disposing of a major subsidiary.
- Issues of shares and debentures
- Purchases and sales of non-current assets and investments
- Losses of non-current assets or inventory as a result of a catastrophe such as fire or flood
- Announcing or commencing the implementation of a major restructuring. (See IAS 37)
- Announcing a plan to discontinue an operation
- Strikes and other labour disputes
DIVIDENDS
If an entity declares dividends to equity shareholders after the balance sheet date the entity shall not recognise those dividends as a liability at the balance sheet date.
The dividends are not recognised as a liability at the balance sheet date because they are not a present obligation at the balance sheet date.
GOING CONCERN
An entity shall not prepare its financial statements on a going concern basis if management determines after the balance sheet date that it intends to liquidate the entity or to cease trading or that it has no realistic alternative but to do so.
DISCLOSURE
An entity shall disclose the date when the financial statements were authorised for issue and who gave the authorisation.
If an entity receives information after the balance sheet date about conditions that existed at the balance sheet, it shall update disclosures that relate to those conditions, in the light of the new information.
For non-adjusting events an entity shall disclose:
- The nature of the event, and
- An estimate of its financial effect or a statement that such an estimate cannot be made.
