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CMA Intermediate · Corporate Accounting and Auditing · Events after the Reporting Period (Ind AS 10)

Meghna Pharma Ltd. closed its books on 31 March 2027, and the Board approved the statements on 30 June 2027. Which one of the following should the company treat as an adjusting event?

The discovery of the employee fraud that caused unrecorded cash shortages in March 2027 is the adjusting event, because fraud or errors showing the statements are incorrect require adjustment. The restructuring, exchange rate fall and share issue are non-adjusting and call only for disclosure.

  1. AOn 15 April 2027, it announced a major restructuring that was not planned before year-end
  2. BOn 20 May 2027, the rupee fell abnormally against the dollar, sharply raising the value of its foreign borrowings
  3. COn 10 June 2027, it discovered that a fraud by an employee had caused unrecorded cash shortages in March 2027Correct
  4. DOn 5 May 2027, it issued a large block of ordinary shares to institutional investors

Explanation

The discovery of fraud or errors showing that the financial statements are incorrect is an adjusting event, so the March 2027 shortage is recognised in that year. An announced restructuring, an abnormal change in exchange rates and a major ordinary share transaction after the reporting period are non-adjusting events listed for disclosure. The foreign exchange change in particular does not adjust the year-end balances.

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