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IAS 10 – All you need to know

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Events after reporting period are those events favorable or unfavorable, that occur between the end of the reporting period and the date on which the financial statement are authorized for issue. Events after reporting period are divided into adjusting events and non-adjusting events.
 
Adjusting events these are events that provide evidence of the conditions that existed at the reporting date. Example of adjusting events include

  • Settlement after the reporting date of the court case that confirm the entity had the present obligation at the end of the reporting period.
  • Events that indicate that the going concern assumption in relation to whole or part of the entity is not appropriate 
  • Bankruptcy of the customer that occur after the reporting date that confirm a loss existed at the reporting date on trade receivable
  • Discovery of fraud or errors that shows the financial statement are incorrect
  • Determination after reporting date of cost of asset purchased or the proceeds from asset sold, before the reporting date

IAS 10 require adjusting events to be reflected within financial statement.
Non-adjusting events are defined as those events that are indicative of the condition that arose after the reporting period. Example of non-adjusting events include;

  • Major business combination or disposal of the subsidiary
  • Announcing the plan to discontinue an operation
  • Destruction of major production plant by fire and
  • An abnormally large change in asset prices or foreign exchange rates
  • major ordinary share transactions
  • Entering into major commitment such as guarantees
  • Commencing major litigation arising solely out of events that occurred after the reporting period 

Dividends that are declared after the reporting date are non adjusting events
Non adjusting events by definition are not recognized within financial statement as at the reporting date, instead the reporting entity must make disclosure of such non-adjusting events . The disclosure should include;

  • The nature of the event and
  • An estimate of its financial effect, or the statement that such an estimate cannot be made

An entity shall not prepare its financial statements on the going concern basis if management determines after the reporting date either that it intend to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.

Approval of financial statements – one of the main aim of IAS 10 is that it require management to consider all events both favorable and unfavorable before approval of financial statements takes place.

An organization may be required to submit its financial statement to its shareholders for approval after financial statement have been issued. In such cases the financial statement are considered authorized for issue on the date of the issue not the date when shareholders approve them
Management of the organization may be required to issue its financial statements to the supervisory body (made up solely of non-executive directors) for approval. Under the principle of IAS 10 such financial statements are considered authorized for issue when management authorized them for issue to supervisory body
Where a reporting entity re-issue the financial statement because of errors or because of the events that occurred after the financial statements were originally authorized for issue. This will give rise to a new date of authorization for issue. The financial statement must then properly reflect all adjusting and non-adjusting events, which also include those that occurred during the interim period between the original date and new date of authorization.

Disclosure required by IAS 10

    • date of authorization of issue of financial statement and by whom
    • if the entity owner or other have the power to amend the financial statements after issue, the entity is required to disclose that fact.
  • For any information received about conditions that existed at the reporting date, disclosure that relate to those conditions should be updated with the new information..

4 thoughts on “IAS 10 – All you need to know”

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