ACCA Applied Knowledge · Financial Accounting
Events After the Reporting Period (IAS 10) for ACCA FA
Events after the reporting period are favourable or unfavourable events between the year-end date and the date the financial statements are authorised for issue. Under IAS 10, adjusting events give more evidence of conditions at the year end, so you change the figures. Non-adjusting events arose after the year end, so you only disclose them if material.
What this chapter covers
This chapter covers IAS 10 Events after the Reporting Period. The question it answers is simple. A company's year ends on one date, but the financial statements are approved weeks or months later. What do you do with things that happen in that gap?
The whole chapter rests on one test. Did the event give you more evidence about a condition that already existed at the reporting date? If yes, it is an adjusting event and you change the amounts in the statements. If the condition arose after the reporting date, it is a non-adjusting event. You do not change the amounts. You disclose the nature of the event and an estimate of its financial effect if it is material. The chapter also covers dividends declared after the year end and the rule that a deterioration in results after the year end may mean the going concern basis is no longer appropriate.
The chapter links to several other parts of the paper. Adjusting events often affect receivables and irrecoverable debts, inventory valued at the lower of cost and net realisable value, and provisions and contingencies under IAS 37. It also sits beside the preparation of the statement of financial position and the statement of profit or loss, and it relates to the conceptual framework idea of going concern. If you are comfortable with those areas, this chapter is a short and very scoreable add-on.
Events after the reporting period is a small chapter, but it produces quick objective test questions that are mostly about classification. Once you know the single test, you can answer most of them in under a minute. It also feeds the accounts preparation questions in Section B, where you may have to adjust a receivable, inventory or provision for a post year-end event, and it reinforces other chapters, so time spent here pays back more than once.
Events after the reporting period: topics in the order to study them
- 1IAS 10 Scope and Key DefinitionsStart here to learn the two key dates, the reporting date and the date of authorisation, because every later rule depends on the window between them.
- 2Adjusting Events After the Reporting PeriodLearn this next because it is the core test and the type that changes numbers, and it links directly to receivables, inventory and provisions.
- 3Non-Adjusting Events and DisclosureStudy this after adjusting events so you can contrast the two, since most exam questions ask you to tell them apart.
- 4Dividends Declared and Going Concern After Year EndFinish with these two special rules, which are often tested as traps and make sense once the adjusting and non-adjusting split is clear.
How to prepare Events after the reporting period
This chapter is about classification, not calculation. Prepare by learning one test, then practise applying it to many short examples until the answer is automatic.
- Learn the window. Write down the reporting date and the date the statements are authorised for issue, and remember that IAS 10 only covers events between them.
- Memorise the single test: did the event give more evidence of a condition that existed at the reporting date? Yes means adjusting. No means non-adjusting.
- Build two lists in your own words with typical examples. Adjusting: a customer going insolvent after the year end when the debt was already doubtful, inventory sold below cost after the year end, or a court case settled for a different amount than the provision. Non-adjusting: a fire, a major acquisition, or a fall in the market value of investments after the year end.
- Practise the double-entry for adjusting events. For an irrecoverable receivable, for example, you reduce receivables and increase expenses, so profit falls.
- Learn the dividend rule: dividends on equity shares declared after the reporting date are not a liability at the year end and are only disclosed.
- Learn the going concern rule: if management decides after the year end to liquidate or cease trading, or has no realistic alternative, the statements are no longer prepared on a going concern basis. This is a pervasive change, not a simple disclosure.
- Finish with timed objective test practice. Do multiple choice, multiple response and number entry questions, and for each wrong answer note which part of the test you misapplied.
Common mistakes in Events after the reporting period
Classifying an event by how bad it is rather than by when the condition arose.
Fix: Ignore the size at first. Ask whether the condition existed at the reporting date. A huge fire after the year end is still non-adjusting.
Adjusting the financial statements for a material non-adjusting event.
Fix: Materiality only decides whether you disclose a non-adjusting event. It never turns it into an adjusting one.
Treating a dividend declared after the year end as a liability in the statement of financial position.
Fix: Check the declaration date. If it falls after the reporting date, there was no obligation at the year end, so you only disclose it.
Assuming going concern problems after the year end only need a note.
Fix: Remember that a decision to liquidate or cease trading changes the basis of preparation itself, so it is more serious than a normal non-adjusting event.
Missing which date ends the window.
Fix: The window ends on the date the financial statements are authorised for issue. Read the dates in the question carefully.
Getting the double-entry direction wrong for adjusting events.
Fix: After deciding it is adjusting, state which asset or liability changes and whether profit goes up or down. Then check your answer against that.
Last-day revision: Events after the reporting period
- 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.
Events after the reporting period practice questions
- Zeta Co has a reporting date of 31 December 20X5. On 20 January 20X6 the directors declared a final ordinary dividend of $200,000 in respect…
- Kestrel Co has a reporting date of 31 December 20X5. On 20 January 20X6 the directors declared a final ordinary dividend of $200,000 in resp…
- At 30 June 20X4 Rowan Co had inventory in its records at cost of $85,000. In August 20X4, before the financial statements were authorised, p…
- Zeta Co has a year end of 31 December 20X5 and its financial statements were authorised on 15 March 20X6. Receivables at the year end includ…
- Which of the following events occurring after the reporting date but before the financial statements are authorised for issue is an adjustin…
- At 31 March 20X6 Delta Co had a legal claim against it, and the directors had disclosed a contingent liability because an outflow was consid…
- Zenith Co has a reporting date of 31 December 20X5. The financial statements were authorised for issue on 20 March 20X6. On 15 February 20X6…
- Marlow Co has a year end of 30 June 20X6. Its retained earnings at 30 June 20X6 before any dividend adjustment were $850,000. On 10 June 20X…
Events after the reporting period in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Events after the reporting period: frequently asked questions
What is the difference between adjusting and non-adjusting events?
An adjusting event gives more evidence of a condition that existed at the reporting date, so you change the amounts in the financial statements. A non-adjusting event relates to a condition that arose after the reporting date, so you only disclose it if it is material.
Are dividends declared after the year end adjusting events?
No. Dividends on equity shares declared after the reporting date are not a liability at that date, so you do not recognise them. You disclose them in the notes if they are material.
What happens to going concern if something goes wrong after the year end?
If management decides after the year end to liquidate the entity or stop trading, or has no realistic alternative, the statements can no longer be prepared on a going concern basis. This applies even if the event happened after the year end, because it affects the whole basis of preparation.
How are events after the reporting period tested in the FA exam?
They appear mainly in Section A objective test questions that ask you to classify an event, choose the correct treatment or calculate an adjusted figure. They can also feature as a step in a longer accounts preparation question in Section B.