EVENTS AFTER THE REPORTING PERIOD*

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If financial information is not complete then that information will NOT be reliable and relevant

Completeness requires financial statement to reflect effects of transaction that have occurs:During the accounting periodMaterial events after the financial year-end but before the financial statement are authorised for issue.

FRS 110: Events after the Reporting Dates: Post-reporting period events that may effect the current years financial performance and position*

FRS 110 defines events after the reporting date as those events, both favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. *The standard has identified two types of events. They are:

a.Those events that provide further evidence of conditions that existed at the end of the reporting period (adjusting events), and

b. Those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events).

Date When The Financial Statements Are Authorised For Issue

Common practice: several weeks/months after the year-end.

Due to year-end adjustment, closing the books and auditing.

Companies Act 1967: Max 6 months.

The date on which the financial statements are authorised for issue depends on the management structure, statutory requirements and procedures followed by each entity in preparing and finalising the financial statements.

Examples 1 and 2 of text book

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Accounting and Reporting:Adjusting Events

Adjusting events affect the financial position and performance measurement of the entity even though they occurred between the reporting date and the date the financial statements were authorised for issue.

The accounting treatment is to adjust the elements of financial statements affected by these events.

1) Measurement of bad and doubtful debtsExample: The bankruptcy of a customer after the reporting period gives further evidence of the loss.Need to adjust the carrying amount of the trade receivable.

Examples 3 & 4 of the text book*

2) Determining the net realisable value of inventoryThe measurement of net realisable value is an estimates.The sale of the inventory after the reporting period gives further evidence of the selling price Example 5

3) Court case The entity may recognise a contingent liability.If the court case settled after the reporting period but before authorisation of the financial statements for issues, the adjustment to the provision previously recognised has to be done.Example 6

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4) Impairment of assets If the entity obtain information after the reporting period indicating that an asset is impaired at the reporting period OR that the amount of a previously recognised impairment loss for that asset needs to be adjusted.

5) Cost of assets purchased or proceeds from disposal of assets The determination after the reporting period of the cost of assets purcased/ the proceeds from assets sold, before the reporting period.*

6) Profit sharing or bonusIf the entity had a present legal or constructive obligation at the reporting period to make such payments.The amount was determined after the reporting period before the issue of financial statements.Example 7

7) FraudThe discovery of fraud or errors that shows the financial statement are incorrect

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Non-Adjusting Events

For non-adjusting events, no adjustments are made but the following disclosure should be provided:the nature of the event, and the estimate of the financial effect, or a statement that such an estimate cannot be made.

*Examples of non-adjusting events:Decline in the market value of investments after the reporting date,A major business combination after the reporting date Announcing a plan to discontinue an operation, disposing of assets etc.Major purchases and disposals of assets or expropriation of major assets by government.

Examples of non-adjusting events:destruction of a major production plant by a fire after the balance sheet date. a major restructuringMajor ordinary share transactions Changes in tax rates or tax laws Entering into significant commitments or contingent liabilities Commencing major litigation arising solely out of events that occurred after the reporting date.

Example 8 of the text book

*Non-Adjusting Events (Contd)

Dividends and Going Concern Status

DividendsProposed dividends are Not present obligations and are not to be recognised as liabilities. A disclosure is required.

Going Concern StatusWhere the management determines after the reporting date that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so, then the going concern assumption used in preparing the financial statements may no longer be appropriate. Financial statements are to be prepared on a liquidation basis.*

The standard requires an entity to disclose:The date when the financial statements were authorised for issue, who gave the authorisation.

If the entitys owners or others have the power to amend the financial statement after issue, the entity shall disclose that fact.

The information received after the reporting period about conditions that existed at the reporting period. *

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