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CA Final · Financial Reporting · Ind AS 10 Events after the Reporting Period

Nila Foods Ltd has a 31 March 2026 reporting date, and its financial statements were approved by the Board on 18 May 2026. Which one of the following events occurring between these dates is an adjusting event?

The discovery of the employee fraud is the adjusting event, because it shows that the financial statements at 31 March 2026 were incorrect. The other three events, a restructuring announcement, a tax rate change and litigation arising solely from a later recall, are non-adjusting and are only disclosed.

  1. AOn 5 May 2026 the company announced a major restructuring and began its implementation
  2. BOn 12 April 2026 the company discovered a fraud by an employee that occurred in January 2026 and overstated inventory at the reporting dateCorrect
  3. COn 20 April 2026 a government enacted a change in tax rates that significantly affects deferred tax balances
  4. DOn 8 May 2026 the company commenced major litigation arising solely out of a product recall that occurred on 2 May 2026

Explanation

The discovery of fraud or errors that show the financial statements are incorrect is an adjusting event, and here the fraud affected inventory at the reporting date. The restructuring, the tax rate change and litigation arising solely from a post-period event are listed examples of non-adjusting events, which are disclosed but not adjusted.

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