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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

Hale Co's financial statements for the year ended 31 December 20X3 were authorised for issue on 10 April 20X4. Which of the following events between 1 January and 10 April 20X4 would require the 20X3 financial statements to be adjusted?

The discovery of a fraud committed in 20X3 that overstated profit requires adjustment. Fraud or errors showing the statements were incorrect are adjusting events, whereas dividends declared after the year end, later acquisitions and share price falls are non-adjusting.

  1. AThe discovery of a fraud committed in 20X3 that overstated the profitCorrect
  2. BThe declaration of an ordinary dividend of $30,000 for 20X3
  3. CThe purchase of a major new subsidiary in February 20X4
  4. DA decline in the entity's share price in March 20X4

Explanation

Discovery of fraud or errors showing the financial statements were incorrect is an adjusting event. Dividends declared after the reporting date are not recognised as a liability; a subsequent business acquisition and a share price fall are non-adjusting events.

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