IAS 10 * EVENTS AFTER THE REPORTING PERIOD

Report
Contents
 IAS 10
Applicable to events after balance sheet date of 2003 and
last modified in May 2008
 AS 4 (revised 1995)
 Exposure Draft AS 4 20XX
 Revised standard expected to be notified around 15th July
2011
CA Rajiv Kohli
CA Deepti Kheror
MEANING & APPLICABILITY
 Events after the reporting period are defined as events which
occur between the end of reporting date and the date when the
financial statements are authorized for issue.
These events are significant events both favourable and
unfavourable which have occurred during the intervening
period between the reporting date and authorization date.
 IAS 10 prescribes:
Circumstances when an entity should adjust its financial
statements for events after the reporting period and
 Disclosures which an entity has to give about the date of
authorization of the financial statements and events after the
reporting period
CA Rajiv Kohli
CA Deepti Kheror
CLASSIFICATION OF EVENTS
EVENTS OCCURING AFTER THE REPORTING
PERIOD
Adjusting
Events
Non-Adjusting
Events
Events that provide
evidence of
conditions existed at
the reporting date
Events that arose
subsequent to the
reporting date
CA Rajiv Kohli
CA Deepti Kheror
ADJUSTING EVENT
Adjusting event is an event
 occurring after the reporting period that provides
further evidence of conditions that existed at the end
of the reporting period,
 including an event that indicates that the going
concern assumption in relation to the whole or part
of the enterprise is not appropriate
CA Rajiv Kohli
CA Deepti Kheror
ADJUSTING EVENT
TYPES OF ADJUSTING EVENTS
 Fixed Assets: The subsequent determination of the
purchase price or of the proceeds of sale of assets
purchased or sold before the year-end.
 Investments: The receipt of a copy of the financial
statements or other information in respect of an
unlisted company which provides evidence of a
diminution other than temporary in the value of a long
term investment.
 Taxation: The receipt of information concerning
clarification of tax law
CA Rajiv Kohli
CA Deepti Kheror
ADJUSTING EVENT
TYPES OF ADJUSTING EVENTS
 Stocks and Work in Progress: The receipt of proceeds of
sales after the balance sheet date or other evidence
concerning the net realizable value of stocks.
 Debtors: The renegotiation of amounts owed by debtors,
the insolvency of a debtor or the receipt of cash or other
information indicating that the recoverable amount at the
balance sheet date is not fairly stated.
 Claims: Amounts received or receivable in respect of
insurance or legal claims which were in course of
negotiation at balance sheet date
 Discoveries: The discovery of errors or frauds which show
that financial statements were incorrect
CA Rajiv Kohli
CA Deepti Kheror
NON-ADJUSTING EVENT
Non-Adjusting event is an event
 after the reporting period that is indicative of a
conditions that arose after the end of the reporting
period
CA Rajiv Kohli
CA Deepti Kheror
NON-ADJUSTING EVENT
TYPES OF NON-ADJUSTING EVENTS
 Mergers, Acquisitions and Business Combinations
 Reconstructions and proposed reconstructions
 Allotment/ buy back of shares and debentures
 Losses of Fixed Assets or stocks as a result of a catastrophe
such as fire or flood or earthquake
 Closing significant part of the trading activities if this was
not anticipated at the year end
 Changes in rates of Foreign Exchange
 Strikes and other labour disputes
 Change in tax rate that affect deferred tax asset and liability
 Beginning of a litigation that arises out of events
happening after reporting date.
CA Rajiv Kohli
CA Deepti Kheror
GOING CONCERN ISSUES
 An entity shall not prepare its financial statements on
a going concern basis if the management determines
after the reporting date
 either that it intends to liquidate the entity
 or to cease trading
 or that it has no realistic alternative but to do so
 Deterioration in operating results and financial
position after the reporting period may indicate a need
to consider whether the going concern assumption is
still appropriate
CA Rajiv Kohli
CA Deepti Kheror
IAS 10 THROUGH A FEW EXAMPLES
EXAMPLES OF ADJUSTING EVENTS
Example 1
Facts : Settlement of a court case after the reporting
date –
A client sued the company for damage against the
company’s failure to fulfil warranty amounting to Rs.
2 Lacs. The company created a provision of Rs. 1 lac
based on legal advice.
After the end of reporting period but before the date
of authorization of financial statements the court
decided against the company and a compensation of
Rs. 1.5 lac was awarded.
CA Rajiv Kohli
CA Deepti Kheror
Analysis of Example 1 : This issue is covered in IAS 10.9(a). The entity shall
adjust the previously recognized provision under IAS
37 or create a new provision.
 It has now to provide for addition of Rs. 0.5 lac. The
entity does not merely disclose a contingent liability
since the settlement provides an additional evidence.
CA Rajiv Kohli
CA Deepti Kheror
Example 2
Facts : After approval of the accounts by the board of
directors, your client a construction company met a
rocky surface on a project, against which it expects a
non-reimbursable cost of Rs. 80 Lacs. The project is
expected to be a loss project and the entire estimated
loss other than Rs. 80 lacs has already been provided
for. The audit report has not been issued. The
amount is material. Advise on the accounting.
CA Rajiv Kohli
CA Deepti Kheror
Analysis of Example 2 : The condition of rocky surface existed on the balance
sheet date, though it was identified after the balance
sheet date. The Board of Directors should revise the
financial statements, since the accounts are still not
audited.
 Had the accounts been audited and approved at the
AGM, revision would have not been permissible.
CA Rajiv Kohli
CA Deepti Kheror
Example 3
Facts : Whether a liability on wage revisions for past periods
on which agreement was reached or expected to
reach after the balance sheet date to be recognized at
the balance sheet date?
CA Rajiv Kohli
CA Deepti Kheror
Analysis of Example 3 : The company was aware on the balance sheet date, that the
revision of past wages was probable as it had sent proposals
in respect thereof although the final amount was subject to
approval of the government and settlement with its
workers.
 Since the condition about the wage revision existed at the
balance sheet date the liability arising from wage revision
subsequent to the balance sheet date but in respect of past
wages should be provided in the accounts based on a
best estimate.
CA Rajiv Kohli
CA Deepti Kheror
IAS 10 THROUGH A FEW EXAMPLES
EXAMPLES OF NON-ADJUSTING EVENTS
Example 1

Cheques received after the balance sheet date
but bearing Balance Sheet or Pre Balance Sheet
Date:In accordance with ICAI opinion, published in the
ICAI journal of February 2005, cheques received after
the balance sheet date, though containing the
balance sheet date or pre balance sheet date should
not be recognized in the financial statements. This is
in accordance with the accounting framework for
recognition of assets and liabilities.
CA Rajiv Kohli
CA Deepti Kheror
COMPARISON OF ADJUSTING & NONADJUSTING EVENT
Particulars CASE I
CASE II
Facts of the
Example
On 15th April, 1993 due to
destruction of the factory by
fire X, one of the company’s
debtors, declared himself
insolvent. Advice your client
in the treatment for the year
ended on 31st March, 1993
Due to destruction of the factory by
fire on 15th March, 1993, X, one of the
Company’s debtors declared himself
insolvent on 15th April, 1993. Advice
your client on the treatment for the
year ended 31st March, 1993
CA Rajiv Kohli
CA Deepti Kheror
COMPARISON OF ADJUSTING & NONADJUSTING EVENT
Particulars Adjusting Event (I)
Non-Adjusting Event (II)
Analysis of
the Example
Since the fire took place on 15th
April, 1993 as a result of which the
debtor became insolvent, it is not
a condition at the balance sheet
date. Thus, it is non-adjusting
event and provision of debtors is
not required to be made at the
balance sheet date. However,
appropriate
disclosures
are
required to be made in the report
of the board of directors.
Since the fire took place before
the year end, the condition of
insolvency was existing at the
balance sheet date. Thus it is an
adjusting event for which a
provision of doubtful debt needs
to be created at the balance sheet
date.
CA Rajiv Kohli
CA Deepti Kheror
DISCLOSURES UNDER IAS 10
 Disclosure of Authorization:
 An entity should disclose the date when the
financial statements were authorized for issue and
who gave that authorization.
 If the owners of the entity or others have the power
to amend the financial statements after issuance, the
fact is disclosed
CA Rajiv Kohli
CA Deepti Kheror
DISCLOSURES UNDER IAS 10
 Updating Disclosures :
An entity shall update disclosure that relate to the
conditions that existed at the reporting date in the
light of any new information that it receives after the
reporting about those conditions.
CA Rajiv Kohli
CA Deepti Kheror
COMPARISON OF IAS 10 & AS-4
Item of
Difference
IAS 10
AS 4
Adjusting & Nonadjusting event
Amounts
recognized
in
the
financial statements should be
adjusted for events that provide
additional evidence of conditions
that existed at the balance sheet
date and should not be adjusted for
events that provide evidence of
conditions that did not exist at the
balance sheet date.
Similar to IFRS, Under
AS 4, non-adjusting
events are required to
be disclosed in the
report of the approving
authority, for example,
the board report.
Authorization date
for issue of
Financial
Statements
The date of authorization for issue No such requirement
of financial statements should be
specifically mentioned in the
financial statements itself as
required by IAS 10
CA Rajiv Kohli
CA Deepti Kheror
COMPARISON OF IAS 10 & AS-4
Item of
Difference
IAS 10
AS 4
Proposed
Dividend
If dividends to holders of equity
instruments are proposed or
declared after the balance sheet
date, an entity should not recognize
those dividends as a liability at the
balance sheet date. Proposed
Dividend is a non-adjusting event.
The companies are
required
to
make
provision for proposed
dividend, even though
the same are declared
after the balance sheet
date.
CA Rajiv Kohli
CA Deepti Kheror
Comparison of AS 4( Revised
20XX), IAS 10 & IFRIC 17
 Requirements contained in the AS 4 (Revised 20XX) same as those
contained in IAS 10
 No difference between the AS 4 (Revised 20XX), IAS 10 and, IFRIC 17
CA Rajiv Kohli
CA Deepti Kheror
Conflicting issues with Schedule VI
 Dividend declared entity after the reporting period, is not recognised
as a liability at end of the reporting period under AS 4 (Revised 20XX).
Such dividend required to be disclosed in notes to balance sheet, in
accordance with AS 1 (Revised 20XX)
 In contrast, dividend declared but not paid or proposed dividend both
shown as liability in financial statements as per requirements of
Schedule VI to the Companies Act, 1956
CA Rajiv Kohli
CA Deepti Kheror
APPLICATION AT TIME OF
IMPLEMENTING IFRS 1
 At date of transition to IFRS, an entity may need to make
estimates under IFRS that were not required at that date under
Indian GAAP
 To achieve consistency with IAS 10, those estimates under IFRS
shall reflect conditions that existed at the date of transition to
IFRS
 Eg: a constructive obligation that was not recognised under
Indian GAAP should be included in opening IFRS Balance Sheet
using estimates for expected future cash outflows and discount
rates that existed at that time
CA Rajiv Kohli
CA Deepti Kheror
www.inmacs.com
CA Rajiv Kohli
Head Internal Audit, Sox and IFRS
Mob: 9873430075
[email protected],
[email protected]
CA Deepti Kheror
Asst. Vice President
Mob: 9811192162
[email protected]
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