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Events after the Balance Sheet Date IAS-10
• The Objective of this standard is to prescribe:
a) When an entity should adjust its financial statements for events after the balance sheet date; and
b) The disclosure that an entity should give about the date when the financial statements were authorized for issue and about events after the balance sheet date.

• The standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the balance sheet date indicate that the going concern assumption is not appropriate.

Definitions

• Events after the balance sheet date: are those events, favorable and unfavorable, that occur between the balance sheet date and the date when the financial statements are authorized for issue.
• Two types of events can be identified:

a) Those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date) and
b) Those that are indicative of conditions that arose after the balance sheet date (non adjusting events after the balance sheet date)
• In some cases, an entity is required to submit its financial statements to its shareholders for approval after the financial statements have been issued. In such cases, the financial statements are authorized for issue on the date
of issue, not the date when shareholders approve the financial statements.
Example – Authorisation of Financial Statements

• The management of an entity completes draft F/S for the year to December 31, 20X1 on January 31, 20X2. On March 18, the BOD of the entity reviews the F/S and authorizes them for issue. The F/S are made available to shareholders and others on March 21, 20X2.
• The shareholders approve the F/S at their AGM on April 15, 20X2 and the approved F/S are then filed with the regulatory body on April 21, 20X2.
• The F/S are authorized for issue on March 18, 20X2 (date of board authorization for issue)

Recognition and Measurement
• Adjusting Events After the Balance Sheet Date:

• An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events after the balance sheet date.
• The following are examples of adjusting events after the balance sheet date that require an entity to adjust the amounts recognized in its financial statements, or to recognize items that were not previously recognized.

a) The settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at the balance sheet date. The entity adjusts any previously recognized provision related to this court case in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent assets or recognizes a new provision.
b) The discovery of fraud or errors that show that the financial statements are incorrect.
c) The receipt of information after the balance sheet date indicating that an asset was impaired at the balance sheet date, or that the amount of a previously recognized impairment loss for that
asset needs to be adjusted e.g.

• The bankruptcy of a customer that occurs after the balance sheet date usually confirms that a loss existed at the balance sheet date on a trade receivable and that the entity needs to adjust the carrying amount of the trade receivable.

• Non-adjusting Events After the Balance Sheet Date:

• An entity shall not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the balance sheet date e.g.
• A decline in market value of investments between the balance sheet date and the date when the financial statements are authorized for issue. The decline in market value does not normally relate to the condition of the investments at the balance sheet date, but reflects circumstances that have arisen subsequently. Therefore, an entity does not adjust the amounts recognized in its financial statements for the investments.

Dividends

• If an entity declares dividends to holders of equity instruments after the balance sheet date, the entity shall not recognize those dividends as a liability at the balance sheet date.
• If dividends are declared after the balance sheet date but before the financial statements are authorized for issue, the dividends are not recognized as a liability at the balance sheet date because they do not meet the criteria of a present obligation according to IAS 37. Such dividends are disclosed in the notes in accordance with IAS 1 Presentation of Financial Statements.
• Decision about dividend is taken by Directors usually after the balance sheet date on the basis of draft financial results for the year.
• This dividend is called final dividend. Any dividend declared during the year is called Interim dividend.
• In Pakistan we used to recognize final dividend as liability under the requirement of 4th Schedule.
• However this requirement has been removed from the revised 4th Schedule and from 2004-2005 IAS 10 will be followed.

Going Concern

• An entity shall not prepare its financial statements on a going concern basis if management determines after the balance sheet 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 balance sheet date may indicate a need to consider whether the going concern assumption is still appropriate. If going concern assumption is no longer appropriate, the effect is so pervasive that this standard requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognized within the original basis of accounting.

• IAS 1 specifies required disclosure if:
a) The financial statements are not prepared on a going concern basis;

b) Management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. The events or conditions requiring disclosure may arise after the balance sheet date.

Disclosure IAS -10
• An entity shall disclose the date when the financial statements were authorized for issue and who gave that authorization. If the entity’s owners or others have the power to amend the financial statements after issue, the
entity shall disclose that fact.
Disclosure about Conditions at the Balance Sheet Date

• If an entity receives information after the balance sheet date about conditions that existed at the balance sheet date, it shall update disclosures that relate to those conditions, in the light of the new information.

Disclosure

• Non-adjusting Events after the Balance Sheet Date.
• If non-adjusting events after the balance sheet date are material, non-disclosure could influence the economic decisions of users taken on the basis of the financial statements. Accordingly, an entity shall disclose the following for each material category of non-adjusting events after the balance sheet date:

a) The nature of the event; and
b) An estimate of its financial effect or a statement that such an estimate cannot be made.
• The following are examples of non-adjusting events after the balance sheet date that would generally result in disclosure:
a) A major business combination after the balance sheet date (IFRS 3 Business combinations requires specific disclosures in such cases) or disposing of a major subsidiary.
b) Announcing a plan to discontinue an operation.
c) The destruction of a major production plant by a fire after a balance sheet date.
d) Announcing, or commencing the implementation of, a major restructuring.
e) Entering in to significant commitments or contingent liabilities, for example, by issuing significant guarantees.
f) Commencing major litigation arising solely out of events that occurred after the balance sheet date.
g) Major purchases of assets, classification of assets as held for sale in accordance with IFRS-5 (Non current assets held for sale and discontinued operations and other disposals of assets.
h) Major ordinary share transactions and potential ordinary share transactions after the balance sheet date (IAS 33 Earnings per share requires an entity to disclose a description of such transaction, other than when such transactions involve Capitalization or bonus issues)
Summary of Accounting Treatments

• Adjust: Assets and liabilities where events after the B/S date provide further evidence of conditions existing at the B/S Date.
• Do Not Adjust: But instead disclose important events after the B/S date that does not affect condition of assets / liabilities at the B/S Date.
• Dividends: for the period proposed/disclosed after the B/S date but before Financial Statements are approved should be disclosed but not included in liabilities.