Advanced Accounting · AS 4 Contingencies and Events occurring after the Balance Sheet Date

AS 4 Scope, Definitions and Contingencies for CA Inter

Updated 5 October 2026 · Fact-checked

AS 4 (revised) covers only events occurring after the balance sheet date. Contingencies are governed by AS 29. A contingency is a condition whose outcome depends on uncertain future events. To solve questions, mark the dates, decide if an event is adjusting or non-adjusting, and apply the AS 29 tests: provide, disclose or ignore.

Understand AS 4 Scope, Definitions and Contingencies

Every balance sheet is prepared on a fixed date, but it is approved some weeks or months later. In that gap, things happen. A customer may go insolvent. A court may give a verdict. A fire may destroy stock. You need to know how these affect the financial statements.

After AS 29 became effective, AS 4 (revised) covers only events occurring after the balance sheet date. These are significant events, favourable or unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the board of directors (or the corresponding authority in other entities). Contingencies (provisions, contingent liabilities and contingent assets) are governed by AS 29, not AS 4.

A contingency is a condition or situation, the final outcome of which, gain or loss, will be known only when one or more uncertain future events occur or fail to occur.

Events after the balance sheet date are of two types. Adjusting events give additional evidence of conditions that existed at the balance sheet date. You change the amounts in the financial statements. Non-adjusting events relate to conditions that arose after the balance sheet date. You do not change amounts, but you disclose them if they are material enough to affect the decisions of users.

There is one special case. If events after the balance sheet date, such as a serious deterioration in the enterprise's position after the year end, show that the going concern assumption is no longer appropriate, you cannot simply adjust a few amounts. The financial statements must not be prepared on a going concern basis. This needs a change in the basis of accounting.

For contingencies, the AS 29 rule rests on prudence. You recognise a provision only when there is a present obligation arising from a past event, an outflow of resources is probable, and a reliable estimate can be made. If any one test fails, the item is a contingent liability. You disclose it in the notes, unless the chance of outflow is remote. A contingent asset (gain contingency) is not recognised in the financial statements, because that would mean recognising income that may never be realised.

Note the link between the two standards. AS 4 deals with the timing question: what happened after the year end. AS 29 deals with the recognition question: provide, disclose or ignore. Read the question to see which standard it points to.

One AS 4 rule on dividends: dividends stated to be in respect of the period covered by the financial statements, proposed or declared after the balance sheet date but before approval, are not recognised as a liability at the balance sheet date. They are disclosed in the notes, because no obligation existed on that date.

Key rules to remember

Definition of contingency: Contingency = condition or situation whose outcome (gain or loss) depends on uncertain future events; The outcome is confirmed only when the future event occurs or does not occur. Recognition is governed by AS 29.
Period of events after balance sheet date: Balance sheet date → date of approval of financial statements by the board; Events outside this window are not covered by AS 4. Both favourable and unfavourable events count.
Adjusting event: Event gives evidence of a condition existing at the balance sheet date → adjust the amounts; Example: insolvency of a debtor confirming that the debt was doubtful at year end.
Non-adjusting event: Event relates to a condition arising after the balance sheet date → no adjustment; disclose if material; Example: fire destroying a warehouse after the year end.
Provision (AS 29): Present obligation from a past event AND outflow probable AND reliable estimate → provide; otherwise → contingent liability, disclose (unless outflow remote); All three conditions must be met for a provision. Remote outflows need no disclosure.
Contingent asset (AS 29): Contingent asset → not recognised in the financial statements; Do not show it as income or a receivable. When realisation is virtually certain, the asset is no longer contingent and is recognised.
Dividends after balance sheet date: Dividends for the year, proposed or declared after the balance sheet date but before approval → not recognised as a liability at balance sheet date; disclose in notes; No obligation existed at the balance sheet date, so do not provide. Disclose by note.

How to solve AS 4 Scope, Definitions and Contingencies questions

Use the same sequence for any scenario question on this topic. It keeps you from mixing up AS 4 and AS 29.

1Read the question and mark three dates: balance sheet date, date of the event, and date of approval of the financial statements.
2Decide whether the item is a contingency (outcome uncertain, AS 29) or an event after the balance sheet date (AS 4). Some questions involve both.
3For an event, check whether it falls between the balance sheet date and the approval date. If not, it is outside AS 4 for that year.
4Ask: does the event give evidence of a condition that existed at the balance sheet date? If yes, it is adjusting. If the condition arose later, it is non-adjusting.
5For a contingent loss, apply the three AS 29 tests: present obligation from a past event, probable outflow, and reliable estimate. All yes means provide. Otherwise disclose as a contingent liability, unless remote.
6For a contingent gain, do not recognise it. Do not show it as income.
7Write the journal entry or adjustment for adjusting items. For non-adjusting items, write the disclosure note with the nature of the event and an estimate of its financial effect.
8State the conclusion in one line with the reason, quoting the AS 4 or AS 29 principle.

Quickest way: Date and Condition test

When to use it: Use it for MCQs and for short written scenario questions where you have only a few minutes.

Underline the balance sheet date and the approval date in the question.
Ask one question: did the condition exist on the balance sheet date? Yes means adjust. No means disclose only.
For losses: present obligation, probable and estimable means provide; else disclose; remote means nothing.
For gains: never recognise.
In written answers, use the format: facts, rule, treatment, amount. This earns step marks even if the final number is wrong.
In MCQs, eliminate options that recognise a contingent gain or adjust for an event that arose after the year end.

Common mistakes in AS 4 Scope, Definitions and Contingencies

Adjusting the accounts for every event after the balance sheet date.
Students assume that anything that hurts profit must be booked.
Fix: Adjust only if the event confirms a condition existing at the balance sheet date. Events like a post-year-end fire are only disclosed.
Treating an event after the approval date as covered by AS 4.
Students forget that the window ends when the board approves the statements.
Fix: Always mark the approval date. Events after it are outside the period in this standard.
Recognising a contingent gain as income, or showing it as a receivable.
Students apply loss rules to gains too.
Fix: Prudence is one-sided here. Contingent assets are not recognised. Recognise only when realisation is virtually certain.
Providing for a contingent loss only because it is probable, without checking the other AS 29 tests.
Students remember only one of the conditions.
Fix: A provision needs all three: present obligation from a past event, probable outflow, and reliable estimate. If any fails, disclose the contingent liability unless remote.
Showing a dividend for the year as a liability at the balance sheet date when it was proposed or declared after that date.
'Proposed dividend' was long shown as a liability in the balance sheet, so students carry the habit into exam answers.
Fix: If proposed or declared after the balance sheet date, there was no obligation on that date. Do not provide. Disclose it by note.
Applying AS 4 to contingencies, or mixing up AS 4 and AS 29.
Older material and the word 'contingency' make students link contingencies with AS 4.
Fix: After AS 29 became effective, AS 4 (revised) covers only events after the balance sheet date. Treat provisions, contingent liabilities and contingent assets under AS 29.

Worked examples

Example 1

A company closes its books on 31 March 2027. The board approves the financial statements on 20 May 2027. A debtor owing ₹4,00,000 at 31 March 2027 was declared insolvent on 5 May 2027, and the company expects to recover nothing. The company had made no provision for this debt. Advise on the treatment. Also, on 10 May 2027 a fire destroyed part of the company's stock worth ₹6,00,000.

Show the solution

Dates: balance sheet date 31 March 2027; approval date 20 May 2027. Both events (5 May and 10 May) fall inside this period.
Debtor insolvency: the debt was outstanding at 31 March 2027. The insolvency confirms that the debtor was already in financial difficulty at the balance sheet date. It is an adjusting event.
Treatment: write off ₹4,00,000 as bad debt by debiting Bad Debts A/c and crediting the debtor's account. Profit for the year falls by ₹4,00,000.
Fire: the fire occurred after the balance sheet date. Stock at 31 March 2027 existed in full on that date, so the condition did not exist then. It is a non-adjusting event.
Treatment: do not change closing stock. Non-adjusting events are disclosed if non-disclosure would affect the decisions of users. The question gives no materiality figure (such as profit or turnover), so assume the ₹6,00,000 loss is material. Disclose the nature of the event and an estimate of the financial effect (₹6,00,000, subject to insurance recovery if any) in the notes.

Answer: The debtor's insolvency is an adjusting event: write off ₹4,00,000. The fire is a non-adjusting event: no change in the accounts. The question gives no materiality figure, so assume the loss is material and disclose its nature and the estimated effect of ₹6,00,000 (a non-adjusting event is disclosed if it is material).

Example 2

At 31 March 2027, a lawsuit claiming ₹10,00,000 is pending against a company. The claim arises from a supply made before the year end. Its lawyers say the company will probably lose, and the likely loss is ₹8,00,000. Separately, the company has filed a claim against a supplier for ₹5,00,000, and it is likely that it will win. Show the treatment of both items for the year ended 31 March 2027 under AS 29.

Show the solution

The lawsuit is a loss contingency. The outcome depends on a future court decision.
Test 1: is there a present obligation from a past event? Yes, the claim arises from a supply made before the year end, and the lawyers' view indicates the company is probably liable.
Test 2: is an outflow probable? Yes, the lawyers say the company will probably lose.
Test 3: can a reliable estimate be made? Yes, the best estimate is ₹8,00,000.
All three tests are met, so provide ₹8,00,000 (the best estimate of the expected outflow) by debiting Profit and Loss A/c and crediting Provision for Litigation.
The claim of ₹10,00,000 is not the amount provided. The provision is the best estimate of the whole obligation, which is ₹8,00,000.
Disclose the nature of the obligation, a brief description of the case, the expected timing of any outflow, and the uncertainties about the amount. Also disclose that the claim is ₹10,00,000 and that the provision is ₹8,00,000.
Do not create a separate ₹2,00,000 contingent liability for the gap between the best estimate and the claimed amount. The ₹8,00,000 is the best estimate of the entire obligation, not a part of it.
The claim against the supplier is a contingent asset. It is not recognised, even if likely. Do not show ₹5,00,000 as income or a receivable.

Answer: Provide ₹8,00,000 for the lawsuit, because there is a present obligation from a past event, an outflow is probable and a reliable estimate exists. The provision is the best estimate of the whole obligation. Disclose the nature of the obligation, the uncertainties and the expected timing, and state that the claim is ₹10,00,000 and the provision is ₹8,00,000. Do not show the ₹2,00,000 difference as a separate contingent liability. Do not recognise the ₹5,00,000 claim as income, because it is a contingent asset.

Exam tips

Always list the balance sheet date and the approval date first. Many marks in scenario questions go to correct date reasoning.
Write the reason with the treatment. 'Adjusting, because the debt existed at the year end' scores more than 'Adjusting'.
In MCQs, any option that books a contingent gain as income is almost certainly wrong.
Keep the two standards separate in theory answers: AS 4 for adjusting and non-adjusting events (one example each), AS 29 for contingencies and provisions.
If a question mentions provisions or contingent liabilities from past events, say that AS 29 governs them and answer using its recognition tests. AS 4 (revised) covers only events after the balance sheet date.

Practice questions from AS 4 Contingencies and Events occurring after the Balance Sheet Date

AS 4 Scope, Definitions and Contingencies: frequently asked questions

What is the difference between adjusting and non-adjusting events in AS 4?

An adjusting event gives evidence of a condition that existed at the balance sheet date, so you change the amounts in the financial statements. A non-adjusting event relates to a condition that arose after that date. You only disclose it if it is material.

Is a contingent gain ever recognised?

No. Under AS 29, a contingent asset is not recognised in the financial statements because the income may never be realised. It is recognised only when realisation becomes virtually certain, as it is then no longer a contingency.

What is the difference between a contingent liability and a provision?

A provision is a liability that is recognised in the accounts because there is a present obligation from a past event, an outflow is probable and a reliable estimate can be made. A contingent liability is not recognised. It is disclosed in the notes unless the chance of outflow is remote. AS 29 gives the detailed tests.

Which events after the balance sheet date are covered by AS 4?

AS 4 covers significant events, favourable or unfavourable, that occur between the balance sheet date and the date the board approves the financial statements. Events after the approval date are not covered.