Past service costs Sundry considerations

Chapter 18 – Events After the Reporting Period Page 246 Adjusting events are those that provide evidence of conditions that existed at the end of the reporting period, whereas non-adjusting events are those that are indicative of conditions that arose after the end of the reporting period. [IAS 10.3] When applying IAS 10, it is critical to realise that there are two key questions that need to be answered. The first is: did the event occur before the financial statements were authorised for issue? If the event occurred after this date, then it is outside the scope of IAS 10. The second is: did the issue to which the event relates exist at the end of the reporting period? For example, if an entity with a year end of 31 December discovers in the following February that a customer has gone into liquidation, this provides additional evidence regarding the recoverability of an asset recognised at 31 December. 4 Overview of IAS 10 Did the event occur between the end of the reporting period and the date on which the financial statements were authorised for issue? No: outside the scope of IAS 10 Yes: does the event relate to a condition that existed as at the end of the reporting period? Yes: this is an adjusting event and the financial statements should be adjusted as appropriate No: does the event mean that management will have to liquidate the entity or cease trading? No: this is a non-adjusting event and the amounts recognised in the financial statements should not be changed. However, disclosure should generally be provided Yes: see section 8 below Chapter 18 – Events After the Reporting Period Page 247 5 Adjusting Events An entity should adjust the amounts recognised in the financial statements to reflect any adjusting events that have been identified. [IAS 10.8] IAS 10 provides a number of specific examples of adjusting events. Such examples include:  the settlement of an outstanding court case that was provided for, or disclosed as a contingent liability, at the period end. The provision at the end of the reporting period should be amended to reflect the actual settlement figure, as this provides additional evidence as to the amount of the provision as required by IAS 37 Provisions, contingent liabilities and contingent assets. If a contingent liability was initially disclosed at the end of the reporting period, a provision should now be recognised, since the settlement provides information that a present obligation which can be reliably measured existed at the end of the reporting period;  information received after the end of the reporting period about the value or recoverability of an asset recognised at the period end. This might be evidence that the net realisable value for inventories was lower than estimated, in which case the inventories figure should be written down accordingly;  the finalisation of bonuses that were payable at the period end in accordance with IAS 19 Employee benefits; and  the discovery of fraud or errors which show that amounts recognised or information disclosed at the end of the reporting period were incorrect. 6 Non-adjusting Events An entity should not adjust amounts recognised in the financial statements which reflect non- adjusting events that have occurred after the end of the reporting period. [IAS 10.10] Non-adjusting events should instead be disclosed where the outcome of such events would influence the economic decisions made by users of the financial statements. Where the disclosure of such an event is required, the entity should provide details of the nature of the event and an estimate of its financial effect, or state that such an estimate cannot be made. IAS 10 provides a number of examples of non-adjusting events that would normally require disclosure, including:  the major purchase or disposal of assets such as property, plant and equipment or a subsidiary;  the destruction of assets caused by a fire occurring after the end of the reporting period;  the announcement of a major restructuring plan;  a significant fluctuation in foreign exchange rates that would affect amounts reflected in the financial statements;  significant changes in the number of ordinary shares of the entity, perhaps from a bonus issue or share split;  changes in tax rates that will have a significant effect on amounts reported for current and deferred tax in accordance with IAS 12 Income taxes;