Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Provisions, contingencies and events after the reporting period

Nimbus plc's year end is 31 December. In its draft accounts, a contingent liability for a customer's claim is disclosed because outflow was assessed as possible. On 20 February, before the financial statements were authorised, the court ruled against Nimbus, and the claim related to goods sold in October. Another claim from a customer injured in a fire on 15 January is also pending. What is the correct treatment?

Nimbus should recognise a provision for the court ruling because it confirms a condition existing at 31 December, making it an adjusting event. The January fire claim arose after the reporting date, so it is non-adjusting and only disclosed if material.

  1. AAdjust for the court ruling by recognising a provision; treat the January claim as a non-adjusting event with disclosure if materialCorrect
  2. BDisclose the court ruling only; recognise the January claim as a provision
  3. CAdjust for both claims because both arose before authorisation
  4. DAdjust for neither claim because the court ruling occurred after the reporting date

Explanation

The court ruling provides evidence of a condition existing at the reporting date (the October sale), so it is an adjusting event under IAS 10 and a provision is recognised. The January fire arose after the reporting date, so it is a non-adjusting event, with disclosure if material. Treating both as adjusting ignores when the underlying condition arose.

Did you get it right without looking?

One question tells you little. A timed set on Provisions, contingencies and events after the reporting period shows your real accuracy, how long you take and where you lose marks.

Practise Provisions, contingencies and events after the reporting periodFree diagnostic mock

More Provisions, contingencies and events after the reporting period questions