Disclosure and presentation of defined benefit plans

Chapter 18 – Events After the Reporting Period Page 248  entering into major commitments or providing a significant guarantee; and  the commencement of litigation following an event that happened after the end of the reporting period. This is not recognised as a provision since the entity did not have an obligation at the period end. Illustration 1 An entity’s draft financial statements for the year ended 31 December 2007 were finalised on 30 May 2008, approved by the finance director on 7 June 2008, authorised for issue on 20 June 2008 and approved by the shareholders on 5 July 2008. The following events occurred after the end of the reporting period assume all amounts are significant to the entity: 1 Notification on 18 Feb 2008 that a customer owing CU100,000 as at 31 December 2007 has gone into liquidation. The financial statements already include a specific provision of CU20,000 for this customer. This is an adjusting event as it provides more up to date in formation about a provision that was recognised at the end of the reporting period. The provision should be increased to CU100,000. 2 A rights issue on 6 April 2008 to raise CU1,500,000 for an acquisition. This is a disclosable non-adjusting event. The rights issue occurred after the end of the reporting period, but is considered to be of significant importance and should be disclosed in the financial statements. 3 Confirmation on 28 May 2008 from the entity’s insurer that they will pay CU500,000 for inventories that were destroyed in a fire on 24 December 2007. The entity had claimed CU650,000 and recognised this as a receivable in the financial statements. This is an adjusting event since it is in relation to an asset that was recognised at the end of the reporting period. The receivable should be reduced to CU500,000. 7 Dividends If dividends on equity shares have been declared after the end of the reporting period they do not meet the definition of a liability and therefore cannot be recognised as a liability at the end of the reporting period. To be recognised as a liability the entity should have an obligation at the end of the reporting period. The obligation to pay the dividend only arises when it has been declared, so it is at this date, i.e. date of declaration, that a liability should be recognised. Where dividends have been declared after the end of the reporting period, this should be disclosed in the notes to the financial statements. [IAS 10.12] Illustration 2 The recent financial calendar of an entity with a 31 December year end has included the following: Authorised by Approved in annual directors for issue general meeting Financial statements for 2006 28 February 2007 3 May 2007 Financial statements for 2007 28 February 2008 4 May 2008 Chapter 18 – Events After the Reporting Period Page 249 Dividends on proposed by declared by approved in annual ordinary shares directors directors general meeting 2006 final 28 Feb 2007 no yes 2007 interim 31 Aug 2007 yes no 2007 final 28 Feb 2008 no yes These dividends will be dealt with in the entity’s financial statements for 2006, 2007 and 2008 as follows: Financial statements for: 2006 2007 2008 2006 final dividend disclosed in charged to – the notes statement of changes in equity 2007 interim dividend – charged to – statement of changes in equity 2007 final dividend – disclosed charged to in the notes statement of changes in equity 8 Going Concern Financial statements are usually prepared on what is described as the “going concern” basis; this assumes that the entity will continue to operate for the foreseeable future. If, however, management determines after the end of the reporting period that it intends to, or has no realistic alternative but to, liquidate the entity or to cease trading, then the financial statements should not be prepared on the going concern basis. [IAS 10.14] The entity should instead adopt a basis of preparation that is considered more appropriate in the circumstances, although no specific guidance is provided in IAS 10. Disclosure of the change in the basis of preparation should be provided in accordance with IAS 1 Presentation of financial statements. 9 Additional Disclosure Requirements In addition to disclosures that may arise from information on non-adjusting events or where dividends have been declared after the end of the reporting period, an entity should also disclose the date when the financial statements were authorised for issue and who provided that authorisation. This date is important because events that occurred after it are not recognised or disclosed in the financial statements. [IAS 10.17] If subsequent information comes to light after the end of the reporting period about conditions that existed at the reporting date, the original disclosures should be updated to reflect this new information. [IAS 10.19]