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

Sigma plc is finalising consolidated statements for the year ended 31 December 20X5, to be authorised on 28 March 20X6. On 10 February 20X6 a court ruled against its subsidiary Tau Ltd in a lawsuit brought in 20X5 over faulty goods sold in 20X5. Tau had disclosed a contingent liability at year end, and the ruling requires damages of $1.2 million. The finance director suggests keeping the contingent liability disclosure to protect the share price. What is the correct response?

A provision of $1.2 million should be recognised in the consolidated statements at 31 December 20X5. The ruling confirms an obligation existing at year end, making it an adjusting event, and leaving only a disclosure to protect the share price would be unethical and misleading.

1. AAgree, since a court ruling after the year end is a non-adjusting event
2. BRecognise a provision of $1.2 million in the consolidated statements at 31 December 20X5, as the ruling is an adjusting event and non-adjustment would be unethicalCorrect
3. CDisclose the amount in the notes only, and recognise the cost in 20X6
4. DRecognise the provision only in Tau's individual statements and not in the consolidation