Variations in actuarial assumptions

Chapter 18 – Events After the Reporting Period Page 245

Chapter 18 EVENTS AFTER THE REPORTING PERIOD

1 Business Context In assessing business performance, pertinent information sometimes arises following the cut- off date for which financial statements are prepared that may have important implications on the financial position and performance in the year just ended. The end of the reporting period is the cut-off date, and events that happen after this point in time should not generally be recognised in the financial statements of the period just ended. However, information that comes to light after the end of the reporting period may provide additional information about events that actually occurred before the end of the reporting period, and it is then appropriate to take it into account. Financial statements should reflect the most up to date facts about events that had occurred by the end of the reporting period. It is sometimes difficult to establish whether an event happening after the end of the reporting period is new information about an existing event or a new event. Users should be informed of significant events occurring after the end of the reporting period, such as acquisitions. The provision of such information will help users to understand the impact on future results. 2 Chapter Objectives This chapter deals with the treatment of events that occur between the end of the reporting period and the date when the financial statements are authorised for issue. On completion of this chapter you should be able to:  understand the objectives and scope of IAS 10 Events after the reporting period;  demonstrate a knowledge of the important terminology and definitions which relate to the treatment of events after the reporting period;  distinguish between adjusting and non-adjusting events after the reporting period;  demonstrate a knowledge of the principal disclosure requirements of IAS 10; and  apply knowledge and understanding of IAS 10 in particular circumstances through basic calculations. 3 Objectives, Scope and Definitions of IAS 10 The objective of IAS 10 is to provide guidance as to how to deal with events that occur after the end of the reporting period but before the date on which the financial statements are authorised for issue by the directors. These are described as “events after the end of the reporting period”. IAS 10 makes a distinction between events that occur during this period which should be adjusted for in the financial statements and those that should instead only be disclosed. The process of authorising financial statements for issue is not defined, as this will depend on the management structure of the entity and the legal requirements of the jurisdiction in which it operates. 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