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ACCA Applied Knowledge · Financial Accounting · Events after the reporting period

Under IAS 10, which of the following statements about the going concern implications of events after the reporting period is correct?

If management decides after the reporting period to liquidate the entity or cease trading, the financial statements must not be prepared on a going concern basis. This is a pervasive change affecting the whole basis of preparation, so it is not treated as a simple non-adjusting disclosure.

  1. AIf management decides after the year end to liquidate the entity, the statements are prepared on a going concern basis with disclosure only
  2. BIf management decides after the year end to liquidate the entity, the statements must not be prepared on a going concern basisCorrect
  3. CA deterioration in operating results after the year end is only a non-adjusting event requiring disclosure
  4. DGoing concern is assessed only at the reporting date

Explanation

IAS 10 states that if after the reporting period management determines it intends to liquidate the entity or cease trading, or has no realistic alternative, the financial statements must not be prepared on a going concern basis. This applies even if the decision arose after the year end, so disclosure alone is not enough.

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