Ind-As 10: Events occurring after reporting period
Introduction: It is the basic accounting principle that financial statements are being prepared for the particular period; sometimes situation may arise that certain events may occur which impacts the financial statements materially. Now the question which arise is whether that transaction or event shall be adjusted in financial statement; whether such event shall be recognized in next financial statement, what if such event is affecting going concern of entity. We will cover all of this aspect in this article.
What are events after reporting period?
Events after the reporting period are those events which may be favorable and unfavorable and that occur between the end of the reporting period and the date when the financial statements are approved.
If we simplify this definition than,
- Event may be favorable; it is not necessary that only unfavorable events are considered.
- Event must occur after reporting period and before approval of financial statements, approval of financial statement means it will be treated as approved when board of directors approves it, in case of company; In any other case it will be treated as approved only when it is approved by body which is authorised to manage the entity on behalf of all members.
- In case any event is occurring after the approval of financial statement than in that case such event will not be considered as events after reporting period and the same will not be considered in next financial year itself.
What will be scenario in case where such financial statements are required to be approved by any supervisory authority also? (i.e. after approval by directors)
In such case financial statement will be treated as approved at a time when the said statements where sent to supervisory board by after the approval of directors; i.e. date on which directors approved the statement will be treated as date of approval.
What if it is the case when before the approval of financial statement interim financial statements has been issued?
Even in such case events occurring after reporting period will be considered till the approval of financial statement.
Illustration : Entity has 7 directors on board of Company; before presenting financial statement for financial year 2019-20 for approval from shareholders they have decided that they will conduct board’s meeting on 7th September, 2020 to approve the same. Before such meeting they have submitted some important financial figures to registrar of company for quarter ending on 30th June, 2020.
What will be the period, that will be considered for above definition of events occurring after balance sheet?
In above case events occurring after balance sheet will be counted from 1st April, 2020 till 7th September, 2020 (assuming on that date board of directors approves the financial statements).
What if meeting of Board of Director is Adjourned?
In that case date of adjourned meeting will be important as it had been specified that approval of financial statement is necessary and not the date on which meeting is conducted.
In case when event is classified as adjusting event than in that case such event will be adjusted in financial statement and on other side even if event is non-adjustable than it will not be adjusted in financial statement.
Illustration: M/s Siva Pvt. Ltd. got the notice to pay the additional tax before the end of financial year; entity was of the strong opinion that he will not be liable to pay such amount and disclosed such amount as contingent liability as at end of financial year. After few days court reject the plea of entity and order to pay additional tax.
Whether this event will be considered as adjusting event?
Yes, In the given case the event will be considered as adjusting event as at end of financial year there was condition, on fulfilment of which entity was liable to pay the amount of tax.
Illustration of Other events that will be termed as adjusting events.
- Information that there is requirement to check about impairment loss in relation assets of entity.
- Bankruptcy of a customer that occurring after the reporting period.
- It has been specified that inventory is to be valued at cost or net realizable value whichever is lower. It may happen that at after year end sale of inventory provides net reliable value which is lower than cost; in such case while determining value of closing stock at cost or NRV whichever is lower; above event will be considered as adjusting event.
- In case there is discovery of any error or fraud which shows that financial statements are incorrect.
Illustration of Other events that will be termed as Non-adjusting events.
- Fire taking place after the end of reporting period.
- Suit filed against company in after the reporting period and no evidence of the same existing as on the reporting period.
Special case relating to above will be discussed in next article.