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

Nanda Pharma Ltd. closed its books on 31 March 2026, and the accounts were approved on 25 June 2026. On 12 May 2026 the company discovered that a fraud by its accountant during 2025-26 had resulted in misappropriation of Rs 9,00,000, which was not reflected in the books at year end. How should this be treated?

The loss of Rs 9,00,000 must be recognised in the 2025-26 accounts. The fraud took place during that year, and its discovery before approval shows the statements were incorrect at the balance sheet date, so it is an adjusting event rather than a mere disclosure item.

  1. ADisclose only as a non-adjusting event
  2. BAdjust the 2025-26 accounts by recognising the loss of Rs 9,00,000Correct
  3. CRecognise the loss in 2026-27 as a prior period item
  4. DNo action, as discovery was after the year end

Explanation

The fraud occurred during 2025-26, so the loss relates to a condition existing at the balance sheet date. Discovery of fraud or errors showing the financial statements were incorrect is an adjusting event. Hence the Rs 9,00,000 loss is recorded in 2025-26, not deferred.

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