ACCA Applied Knowledge · Financial Accounting

Events after the reporting period: formula sheet

Full chapter guide

Key formulas

Definition of an event after the reporting period: Event after the reporting period = favourable or unfavourable event occurring between the end of the reporting period and the date the financial statements are authorised for issue; Both dates matter. An event outside this window is not covered by IAS 10.
The assessment window: Window = reporting period end → date of authorisation for issue; Count events in this window only. Events on or before the year end are normal transactions.
Two types of event: Adjusting events (provide evidence of conditions at the year end) | Non-adjusting events (indicate conditions that arose after the year end); Adjusting events change the figures. Non-adjusting events are disclosed if material.
Key date for the window: Authorisation date = date the statements are approved for issue, usually by the directors; It is not the date the auditor starts work, and not the date of the annual general meeting.
Adjusting event test: Condition existed at the reporting date + evidence arrives before authorisation for issue → ADJUST; The event must fall between the reporting date and the date the financial statements are authorised for issue.
Irrecoverable receivable after year end: Dr Irrecoverable debts expense; Cr Trade receivables; Use for a customer who becomes insolvent after the year end, where the debt existed at the year end. Write off the amount you do not expect to recover.
Court case settled, provision not yet made: Dr Profit or loss (expense); Cr Provision (liability); Use when the settlement confirms a present obligation at the year end.
Court case settled, provision already made: Adjust provision to the settlement amount: difference to profit or loss; If the settlement is higher, increase the provision. If lower, release the excess.
Inventory NRV evidence: Write-down = Cost − NRV, per item or group, where NRV < cost; Dr Cost of sales; Cr Inventory. Inventory is held at the lower of cost and NRV under IAS 2.
Period covered by IAS 10: Events after the reporting period = events between the reporting date and the date the financial statements are authorised for issue; Events after the authorisation date are outside IAS 10.
Non-adjusting event rule: Condition arose after the year end → do not adjust recognised amounts; Disclose by note if material.
Disclosure required: Note = nature of the event + estimate of its financial effect (or a statement that no estimate can be made); Only needed when the event is material.
Dividends declared after the year end: Declared after the reporting date → no liability at the year end; These are non-adjusting. Do not recognise a liability. IAS 10 says to disclose them by note if material.
Dividend declared after the reporting date: No liability at year end; disclose in notes; Applies to dividends to equity holders declared after the reporting period but before the statements are authorised.
Dividend declared on or before the reporting date: Dr Retained earnings, Cr Dividend payable (liability); The obligation exists at the reporting date, so it is recognised.
Adjusting event: Provides evidence of conditions at the reporting date → adjust amounts; Examples include a customer going bankrupt that confirms a receivable was impaired at year end.
Non-adjusting event: Conditions arose after the reporting date → disclose if material; Disclose the nature of the event and an estimate of its financial effect.
Going concern after year end: Intention or need to liquidate or cease trading → not a going concern basis; This is not treated as a normal adjusting or non-adjusting event. The effect is so pervasive that the basis of accounting must change (IAS 10.14-16). Disclose that the statements are not prepared on a going concern basis.

Quick revision

IAS 10 covers events between the reporting date and the date the financial statements are authorised for issue.
Events can be favourable or unfavourable. Both count.
Adjusting events give more evidence of conditions that existed at the reporting date. You change the amounts.
Non-adjusting events relate to conditions that arose after the reporting date. You do not change the amounts.
Disclose a material non-adjusting event: its nature and an estimate of its financial effect, or a statement that no estimate can be made.
Typical adjusting events: customer insolvency confirming a doubtful debt, post year-end sale of inventory showing net realisable value below cost, settlement of a court case that confirms an obligation at the year end.
Typical non-adjusting events: a fire or flood after the year end, a major business combination, or a fall in the value of investments after the year end.
Equity dividends declared after the reporting date are not recognised as a liability at the year end. Disclose them if material.
If management decides after the year end to liquidate the entity or cease trading, or has no realistic alternative, the going concern basis is no longer appropriate.
An event that happens after the year end but within the window is only relevant if it is before authorisation. Events after authorisation are outside IAS 10.
An adjusting event for a bad debt reduces receivables and profit. It is not a disclosure-only matter.

Common mistakes

Using the date of the annual general meeting as the end of the window. Fix: The window ends at the date the financial statements are authorised for issue, which is normally the directors' approval date.
Treating all events after the year end as adjusting. Fix: First decide if the event is in the window. Then decide the type. Many events are non-adjusting.
Treating a customer insolvency as non-adjusting because it happened after the year end. Fix: If the debt was owed at the year end, the insolvency confirms that it was already impaired. Write it off.
Only disclosing a court case settlement instead of adjusting. Fix: A case already under way at the year end that settles later confirms an obligation. Adjust the provision.
Adjusting the figures for a fire or flood that happened after the year end. Fix: The assets existed at the year end. Leave them as they are and disclose the event by note if it is material.
Treating bad news as adjusting and good news as non-adjusting. Fix: Judge only by whether the condition existed at the year end.
Recognising a liability for a final dividend declared after the year end. Fix: A liability needs a present obligation at the reporting date. Declaration after the date means disclosure only.
Using the payment date to decide the treatment. Fix: Use the declaration date. A dividend declared before year end but paid after is still a liability at year end.

Exam tips

Always write the two key dates first. Most definition questions are answered by the date line.
Read the question for the word 'authorised' or 'approved for issue'. That is the end of the window.
Remember that favourable events count as well as unfavourable ones.
In multiple response questions, check every option against the window before choosing. Select exactly the number stated.
Do not rush to classify as adjusting or non-adjusting if the question only asks whether the event is within the scope.
Look for the dates first. Many questions include an event that falls after authorisation and should be ignored.
For multiple response items, pick all events where the condition existed at the year end, such as customer insolvency, case settlement and NRV evidence.
In number entry questions, show the profit effect first, then check whether the question asks for profit, receivables or inventory.