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

Zephyr Ltd has a reporting date of 31 December 20X5 and its financial statements were authorised for issue on 10 March 20X6. On 20 February 20X6 a major customer, Orion Co, was declared insolvent. The receivable of $400,000 at 31 December 20X5 related to sales made in 20X5, and the customer's financial difficulties had been developing before the year end. How should Zephyr treat this?

The financial statements should be adjusted to write off the receivable. The customer's insolvency after the reporting date, but before authorisation, provides evidence of conditions that existed at the reporting date, so under IAS 10 it is an adjusting event.

  1. AAdjust the financial statements to write off the receivable as an adjusting eventCorrect
  2. BDisclose the insolvency as a non-adjusting event only
  3. CIgnore it because it occurred after the reporting date
  4. DRecognise the loss in the 20X6 financial statements only

Explanation

Insolvency of a customer after the reporting date normally confirms that the receivable was impaired at the reporting date, so it is an adjusting event under IAS 10. The event occurred before authorisation, so the receivable is written down. Disclosure only (option 2) would be wrong because the evidence relates to conditions existing at year end.

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