for Accounting Professionals
IAS 10 - EVENTS AFTER THE REPORTING PERIOD
2011
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2
2011 Reviewed
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IAS 10 - EVENTS AFTER THE REPORTING PERIOD
TABLE OF CONTENTS
1,
Introduction
4
Note: Material from the following PricewaterhouseCoopers publication
has been used in this workbook:
Applying IFRS
2.
Definitions
5
3.
IAS 10 – Impact for Banks and Other Financial
Institutions
6
4.
Adjusting Events after the Reporting Period
9
5.
Non-adjusting Events after the Reporting Period
13
6.
Going-concern
14
7.
Disclosure
15
8.
Appendix
20
9.
Multiple Choice Questions
21
10.
Answers to multiple-choice questions
24
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1.
1. Dividends declared in this period after the Reporting
Period, but before approval of the financial statements
should be noted, but not shown as a liability, at the
balance sheet date.
Introduction
Aim
The aim of this workbook is to provide an understanding of IAS
10, Events after the Reporting Period.
2. If the company can no longer be considered a goingconcern during this period, the financial statements should
not be prepared on a going-concern basis.
SUMMARY
3. Events that were unknown, or unclear, at the balance
sheet date. If more information becomes available, it may
cause the financial statements to be adjusted.
In most countries, events after the Reporting Period tend to be
recorded in the notes to the financial statements, if at all. Without
a standard framework , the preparation of financial reports have
lacked consistency.
4. Conditions that arose after the Reporting Period should
not adjust the financial statements, but should be suitably
noted.
IAS 10 details the post- Reporting-Period events and how they
should be recorded under IFRS.
EXAMPLES- conditions that arose after the Reporting Period
These include major acquisitions and disposals, material
changes to banking facilities financing the bank and new share
issues. Such events should be noted.
Post- Reporting-Period events happen during the period starting
immediately after the Reporting Period and ending at the date of
approval of the financial statements.
If material events occur after the approval of financial
statements, they should be communicated to users in an
appropriate manner. Such events are not covered by IAS 10 as
they occur after the approval of the financial statements.
Establishing the exact date of approval is necessary to comply
with the Standard.
There are 4 main types of material post-Reporting-Period events:
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Objective
The objective of the Standard is to prescribe adjustments and
disclosures for events after the Reporting Period.
Generally when the financial statements are approved by the
main board, this date is the end of the post-Reporting-Period
period, regardless of subsequent approvals.
EXAMPLE final approval - 1
2. Definitions
The following terms are used in this Workbook:
A bank is required to issue its financial statements to its
shareholders for final approval.
In such cases, the financial statements are approved on the
date of issue, not the date when shareholders approve the
financial statements.
Events after the Reporting Period
Events after the Reporting Period may be favourable or
unfavourable.
EXAMPLE date of approval - 1
1. On 31 January 2XX7, management of a bank completes
draft financial statements for the year to 31 December
2XX6.
Two types of events can be identified:
1. Adjusting events
Adjusting events are those events that arise after the Reporting
Period, but before approval, that require the balance sheet to be
amended.
2. On 10 February 2XX7, the board of directors reviews the
financial statements and approves them for issue.
2. Non-adjusting events
Non-adjusting events are conditions that arose after the
Reporting Period.
3. On 16 February 2XX7, the bank announces its profit and
selected other financial information. .
4. On 19 March 2XX7, the financial statements are made
available to shareholders, and others.
Approval
The date of approval is the end of the post-Reporting-Period
period.
5. On 24 April 2XX7, the shareholders approve the financial
statements at the annual meeting.
This date may vary depending on factors such as statutory
requirements and the procedures followed in preparing, and
finalising, the financial statements.
6. On 28 April 2XX7, the approved financial statements are
then filed with a regulatory body
The period for post-Reporting-Period events ends on 10
February 2XX7 (date of board approval for issue).
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EXAMPLE final approval -2
The financial statements are approved when the main board
approves them for issue to the supervisory board, not when the
supervisory board gives subsequent approval.
The financial statements are approved for issue on 12 February
2XX8 which is the end of the post-Reporting-Period period.
Supervisory boards usually comprise representatives of
shareholders, workers and other stakeholders in a company.
Their role is non-executive. The management board is
accountable to the supervisory board.
Germany is an example of a country where larger firms have
supervisory boards.
EXAMPLE date of approval - 2
1. On 12 February 2XX8, the management of bank approves
financial statements for issue to its supervisory board. The
supervisory board is made up solely of non-executives,
and may include representatives of employees, and other
outside interests.
Events after the Reporting Period include all events up to the
date when the financial statements are approved for issue, even
if those events occur after the public announcement of profit, or
of other selected financial information.
EXAMPLE - acquisition
Your bank makes preliminary announcements to the local Stock
Exchange every quarter, based on interim financial statements
prepared by management. These summarise the key figures in
an abbreviated set of financial statements.
2. On 23 February 2XX8, the supervisory board approves
the financial statements.
3. On 14 March 2XX8, the financial statements are made
available to shareholders and others.
Before the IFRS financial statements (that will be sent to
shareholders) are approved by the board, your bank undertakes
a major acquisition (or another material event, covered by IAS
10, occurs). This event must be included in the notes to your
IFRS financial statements.
4. On 19 April 2XX8, the shareholders approve the financial
statements at their annual meeting.
5. On 29 April 2XX8, the financial statements are filed with a
regulatory body.
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3. IAS 10 – Impact for Banks and Other Financial Institutions
(iii) the receipt from the lender of a period of grace to rectify a
breach of a long-term loan agreement ending at least twelve
months after the Reporting Period.
IAS 10 is important for banks as events move quickly in the world
of financial services. Any material event between the balance
sheet date and the date of approval of the financial statements
may be subject to reporting and auditing.
Resolving whether an event should be reported in accordance
with IAS 10, a bank should consider its materiality to the financial
statements that are being prepared, or are awaiting approval.
Materiality is a judgement and some guidelines are presented
below:
Such events include changes to the environment in which the
bank operates as well as specific actions taken by the bank itself.
If it is an adjusting event (see below) then the financial
statements will have to be changed, involving further costs.
Materiality
The nature and materiality of the information affects its
relevance, and in some cases the nature of information alone is
sufficient to determine its relevance.
To reduce such events to a minimum, the quicker the financial
statements can be approved, the better. The longer the time
between the balance sheet date and the approval of the financial
statements, the more time is available for reportable events to
occur.
Information will also be material where the nature and
circumstances of the transaction or event are such that users of
the financial statements should be made aware of them.
It is also in the interests of users for a speedy production and
issue of financial statements. Material events after the approval
of the financial statements can be communicated to users
without changing the financial statements.
Determining whether information is material or not is a matter of
professional judgement. The test is whether omission or
misstatement of the information could influence decisions a user
of the financial statements might make.
Examples that apply to loans that need to be disclosed as postbalance sheet events include
The following items will often qualify as material, regardless of
their individual size:
(i) refinancing of loans on a long-term basis;
i) related party transactions;
(ii) rectification of a breach of a long-term loan agreement; and
ii) a transaction, or adjustment, that changes a profit to a loss,
and vice versa;
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iii) a transaction, or adjustment, that takes an undertaking from
having net current assets to net current liabilities, and vice
versa;
xiii)deterioration in relationships with individual or groups of key
suppliers, clients or employees; and
xiv)
dependency on a particular supplier, client or employee.
iv) a transaction, or adjustment, that affects an undertaking’s
ability to meet analysts’ consensus expectations;
EXAMPLE- materiality
v) a transaction, or adjustment, that masks a change in
earnings, or other trends;
Information is material if its omission or misstatement could,
individually or collectively, influence the users’ economic
decisions that are based on the financial statements.
vi) a transaction, or adjustment, that concerns a segment or
other portion of the undertaking’s business that has been
identified as playing a significant role in the undertaking’s
operations, or profitability;
Should management disclose a change in the classification of an
expense that is not material in relation to the equity and net
income?
vii) a transaction, or adjustment, that affects an undertaking’s
compliance with loan covenants, or other contractual
requirements;
Background
An undertaking reclassifies certain items of PPE, from PPE used
for industrial purposes to PPE used for administrative purposes.
The related depreciation expense was previously part of cost of
sales and has subsequently been reclassified to administrative
expenses.
viii)a transaction, or adjustment, that has the effect of increasing
management’s compensation, for example by satisfying
requirements for the award of bonuses;
ix) changes in laws and regulations;
Management has decided not to disclose this change in
classification because the asset’s carrying value and
depreciation expense for the period is not material. Presented
below is an extract from the income statement after the
adjustment.
x) non-compliance with laws and regulations;
xi) fines against the undertaking;
xii) legal cases;
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Revenue
200,000
Cost of sales
199,000
Gross profit
1,000
Loss for the year
45,000
In the following examples, I/B refers to Income Statement and
Balance Sheet (SFP).
EXAMPLE confirmation of obligation
Your bank has been sued for trademark infringement. You made
a provision of $1 million for the lawsuit in your financial
statements at 31st December 2XX4 which have not yet been
approved.
On January 10th 2XX5, the court awards $0,6 million damages
against your bank so the provision is adjusted to $0.6m
I/B
DR
CR
Provision against legal costs
B
0,4m
Legal costs
I
0,4m
Reduction of provision
Depreciation reclassified from cost of sales 1,200
to administrative expenses
Shareholders’ equity
130,000
Total assets
270,000
EXAMPLE crystallisation of liability
Your bank has been sued for anticompetitive behaviour. This has
been denied by your bank, and no provision was made in your
financial statements at
31st December 2XX4.
Solution
Yes. The undertaking should disclose the change in
classification. The undertaking has reported a ‘gross profit’ as a
result of the reclassification rather than a ‘gross loss’. The
presentation of a gross profit rather than a gross loss might alter
the users’ perception of the undertaking’s performance.
On January 14th 2XX5, the court awards $5 million damages
against your bank.
If your financial statements have not been approved, you create a
provision for $5 million in your financial statements to 31 st
December 2XX4.
I/B
DR
CR
Legal costs
I
5m
Provision against legal costs
B
5m
Creation of provision
4. Adjusting Events after the Reporting Period
A bank shall adjust the amounts recorded in its financial
statements, to reflect adjusting events after the Reporting Period.
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The receipt of information, after the Reporting Period, indicating
Should management recognise a loss in its consolidated
financial statements in respect of the sale of a subsidiary after
the Reporting Period, where that subsidiary is sold at a loss?
that an asset was impaired at the balance sheet date, or that the
amount of a previously recorded impairment loss for that asset
needs to be adjusted. This will result in an adjusting event.
Background
EXAMPLE impairment -1
At 31st December 2XX4, part of your computer system is being
repaired. It has a carrying value of $2 million in your financial
statements.
T’s management is preparing its consolidated financial
statements for the year ended 31 December 2XX2. T disposed of
subsidiary X on 15 February 2XX3, incurring a loss of 700,000,
which is material to T. T’s consolidated financial statements are
due to be finalised on 28 February 2XX3.
On January 16th 2XX5, you are informed that the part is
irreparable, and the scrap value is only $0,4 million.
Management has confirmed that the individual assets held in X
have been reviewed for impairment and no provision for
impairment is required in the subsidiary’s single-entity financial
statements.
If your financial statements have not been approved, you reduce
the carrying value of the part to $0,4 million in your financial
statements to 31st December 2XX4.
I/B
DR
CR
Depreciation
I
1,6m
Accumulated depreciation
B
1,6m
Fixed asset impairment provision
Management has also confirmed that no other significant events
have occurred since 31 December 2XX2 to cause a reduction in
the value of X. There has therefore been no material change in
the value of X between year-end and the date of disposal.
EXAMPLE impairment -2
Solution
Yes, management shall adjust the consolidated financial
statements because the event provides evidence of conditions
that existed at the balance sheet date.
Management shall adjust the amounts recognised in a bank’s
financial statements to reflect adjusting events after the
Reporting Period. Additionally, it shall update the disclosure
related to the conditions that are clarified in the light of the new
events.
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The subsidiary must already have been impaired by the balance
sheet date, because there has not been a significant event since
then to cause a reduction in the subsidiary’s value. The disposal
since year-end simply provides evidence of the impairment.
EXAMPLE evidence of realisable value
Your bank has some loans receivable that originally cost $5
million.
At 31st December 2XX4, they had a carrying value of $1 million,
following the recording of loan-loss provisions of $4 million.
Management shall therefore recognise an impairment of the
subsidiary in the consolidated financial statements in accordance
with IAS 36.
On February 8th2XX5, these loans were sold for $1,7 million.
If your financial statements have not been approved, you
increase the carrying value of loans receivable by $0,7 million in
your financial statements to 31st December 2XX4.
EXAMPLE existing loss
Your bank has a client that owes you $8 million on 31st December
2XX4.
9th 2XX5,
On January
your client goes into liquidation. You are
informed that you will receive nothing from the liquidation.
Loan-loss provision
Provision
Increasing loans receivable carrying
value
If your financial statements have not been approved, you reduce
the carrying value of financial statements receivable by $8 million
in your financial statements to 31st December 2XX4
I/B
DR
CR
Accounts receivable
B
8m
Bad debt provision
I
8m
Bad debt write off
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I/B
I
B
DR
0,7m
CR
0,7m
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EXAMPLE confirmation of value
Your bank sold a subsidiary for $4 million on 1st January 2XX4. In
addition, your bank will receive $1 million, if the business that you
sold reaches its profit target for the year to 31st December 2XX4.
EXAMPLE determination of present legal, or constructive
obligation
Your bank has a profit-sharing system based on the audited profit
in the financial statements of 31st December 2XX4.
When preparing your financial statements for 31st December
2XX4, you are told that profit target has not been met. Therefore
you produce the financial statements to reflect the sale proceeds
as $4 million.
On February 26th 2XX5, your auditors confirm the bank’s profit.
The resulting profit-share that will be paid in March 2XX5
amounts to $2,4 million.
If your financial statements have not been approved, you
increase salary costs by $2,4 million in your financial statements
to 31st December 2XX4.
I/B
DR
CR
Salary costs-bonuses
I
2,4m
Accrued bonuses
B
2,4m
Accruing bonus
On January 28th 2XX5, you learn that the profit target had been
met, and therefore you are owed $1 million more.
If your financial statements have not been approved, you
increase the sale proceeds of the business sold by $1 million in
your financial statements to 31st December 2XX4.
I/B
DR
CR
Accounts receivable
B
1m
Profit on disposal
I
1m
Increase of sale proceeds
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The decline in market value does not normally relate to the value
of the
investments at the balance sheet date, but reflects
circumstances that
have arisen since that time.
EXAMPLE fraud and error
Your bank has been compiling the financial statements of 31 st
December 2XX4.
On January 15th 2XX5, your auditors identify some fictitious fee
income totaling $10 million. Expenses have also been overstated
by $8 million, as part of the fraud.
EXAMPLE decline in value of investments
Your bank has invested heavily in Far-Eastern stocks that have
performed well in the period to 31st December 2XX4.
If your financial statements have not been approved, you reduce
fees by $10 million, and reduce expenses by $8 million, in your
financial statements to 31st December 2XX4.
Fee income
Expenses
Accounts receivable
Accounts payable
Corrections of fee income and
expenses
I/B
I
I
B
B
DR
10m
On January 14th 2XX5, a series of earthquakes hit the region,
causing major industrial devastation. Stock markets plummet,
and remain very depressed until the date of approval of your
financial statements.
CR
8m
10m
You do not change the figures in your financial statements to
31st December 2XX4, but note the post-Reporting-Period decline
of investments, and amounts involved.
8m
Dividends
If a bank declares dividends to shareholders after the Reporting
Period, the bank shall not record those dividends as a liability at
the balance sheet date.
5. Non-adjusting Events after the Reporting Period
Non-adjusting events require notes to the financial statements.
The financial figures remain unaltered.
If dividends are declared after the Reporting Period, but before
the financial statements are approved for issue, the dividends
are disclosed in the notes to the financial statements.
An example of a non-adjusting event after the Reporting Period
is a
decline in market value of investments, between the balance
sheet and approval date.
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EXAMPLE
EXAMPLE dividends
Your bank has prepared its financial statements for the period to
31st December 2XX4.
Management shall not prepare the bank’s financial statements
on a going concern basis if it determines after the Reporting
Period to liquidate the bank or to cease doing business.
On January 24th 2XX5, your directors declare dividends totaling
$7 million.
You do not change the figures in your financial statements to
December 2XX4, but quantify the post-Reporting-Period
dividends in the note on retained earnings.
Should management adjust the bank’s financial statements
because the shareholders decided after the Reporting Period to
cease the bank’s core operations?
31st
Background
Management announced on 5 February 2XX3 its intention to
cease the bank’s core operations. The financial statements were
authorised for issue on 19 February 2XX3.
6. Going-concern
A bank shall not prepare its financial statements on a goingconcern
basis, if management determines after the Reporting Period
either that it intends to liquidate the undertaking, or to cease
trading, or that it has no realistic alternative but to do so.
Solution
Management shall prepare the bank’s financial statements on a
liquidation basis rather than on a going concern basis.
Management shall make an assessment of the bank’s ability to
continue as a going concern when preparing the financial
statements. Although the decision to cease the bank’s core
operations was made and announced after the Reporting Period,
the financial statements shall be prepared on a basis other than
going concern.
EXAMPLE
Your bank is preparing its financial statements for the period to
31st December 2XX4.
On January 4th 2XX5, your directors decide to sell the bank’s
assets and liquidate the bank.
Consequently, the amounts recognised in the bank’s financial
statements for 31 December 2XX2 shall be adjusted to conform
to the liquidation basis of accounting.
The financial statements to 31st December 2XX4 should be
produced on a liquidation basis, not a going-concern basis.
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Deterioration in operating results and financial position, after the
Reporting Period, may indicate a need to consider whether the
going concern assumption is still appropriate.
The events, or conditions, requiring disclosure may arise after
the Reporting Period.
EXAMPLE
Your bank has a client that owes you $85 million on 31 st
December 2XX4.
If the going-concern assumption is no longer appropriate, IAS 10
requires a fundamental change in the basis of accounting, rather
than an adjustment to the amounts recorded within the original
basis of accounting.
On January 13th 2XX5, your client goes into liquidation. You are
informed that you will receive nothing from the liquidation.
EXAMPLE
Your bank has a client that owes you $45 million on 31 st
December 2XX4.
Your bank may be able to raise funds to recover from this
disaster, but is unable to secure any commitment by the date
that the financial statements are to be approved.
On January 19th 2XX5, your client goes into liquidation. You are
informed that you will receive nothing from the liquidation.
The financial statements to 31st December 2XX4 should be
produced on a liquidation basis, not a going-concern basis, due
to the uncertainty.
Your bank is unable to raise funds to recover from this loss, and
is certain to be liquidated.
The financial statements to 31st December 2XX4 should be
produced on a liquidation basis, not a going-concern basis.
7. Disclosure
IAS 1 specifies required disclosures if:
Date of Approval for Issue
(i) the financial statements are not prepared on a going-concern
basis; or
A bank shall disclose the date when the financial statements
were approved for issue, and who gave that approval.
(ii) management is aware of material uncertainties related to
events, or conditions, that may cast significant doubt upon the
undertaking’s ability to continue as a going-concern.
EXAMPLE
‘These financial statements have been approved for issue by the
Board of Directors on 28 February 2XX5.’ (Note at the foot of the
balance sheet.)
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If the bank’s owners, or others, have the power to amend the
financial statements after issue, the undertaking shall disclose
that fact.
EXAMPLE –updating disclosure
Your bank has been sued for anticompetitive behaviour. This has
been denied by your bank, and there was only a contingent
liability in your financial statements at 31st December 2XX4.
It is important for users to know when the financial statements
were approved for issue, because the financial statements do not
reflect events after this date.
On January 14th2XX5, the court awards $7 million damages
against your bank.
Updating Disclosure about Conditions at the Balance Sheet
Date
If your financial statements have not been approved, you create a
provision for $7 million in your financial statements to 31 st
December 2XX4, to replace the contingent liability.
If a bank receives information, after the Reporting Period, about
conditions that existed at the balance sheet date (adjusting
events), it shall update disclosures that relate to those
conditions, in the light of the new information.
Legal costs
Provision against legal costs
Creation of provision to replace
contingent liability
In some cases, a bank needs to update the disclosures in its
financial
statements to reflect information received after the Reporting
Period, even when the information does not affect the amounts
that it records in its financial statements (non-adjusting events).
I/B
I
B
DR
7m
CR
7m
In addition to considering whether it should record, or change, a
provision under IAS 37 Provisions, Contingent Liabilities and
Contingent Assets, a bank updates its disclosures about the
contingent liability in the light of that evidence, by providing
comprehensive notes.
One example of the need to update disclosures is when
evidence becomes available, after the Reporting Period, about a
contingent liability that existed at the balance sheet date.
Non-adjusting Events after the Reporting Period
If non-adjusting events after the Reporting Period are material,
non-disclosure could influence the economic decisions of users
taken on the basis of the financial statements.
To comply, a bank shall disclose the following for each material
category of non-adjusting event after the Reporting Period:
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(i) the nature of the event; and
(v) announcing, or commencing the implementation of, a major
restructuring;
(ii) an estimate of its financial effect, or a statement that such an
estimate cannot be made.
EXAMPLE
‘ On January 9th 2XX5, the board of directors announced that the
group would cease operating in branches smaller than 500
square metres. Existing branches that are smaller than 500
square metres will be phased out over the next 18 months.
The following are examples of non-adjusting events after the
Reporting Period that would generally result in disclosure:
(i) a major business combination after the Reporting Period, or
disposal of a major subsidiary;
In the year to 31st December 2XX4, such branches provided
revenues of
$129 million, and a net loss of $2 million. Such branches
comprised fixed assets of $18 million as at 31st December 2XX4,
including property subject to finance leases of $4 million.
(ii) announcing a plan to discontinue an operation, disposing of
assets, or settling liabilities attributable to a discontinuing
operation, or entering into binding agreements to sell such
assets, or settle such liabilities;
368 people were employed in such branches, as at 31 st
December 2XX4.
Many of the jobs will be relocated to other group premises, but a
provision of $0,3 million will been made for redundancy costs.’
(iii) major purchases and disposals of assets, or expropriation of
major assets by government;
EXAMPLE
‘On January 5th 2XX5, the government announced that a new
road would be built.
(vi) Provide a description of ordinary share transactions, or
potential ordinary share transactions, that occur after the
Reporting Period, especially those that would have changed
significantly the number of ordinary shares or potential ordinary
shares outstanding at the end of the period if those transactions
had occurred before the end of the reporting period.
This road will result in the destruction of the bank’s head office.
Negotiations have started with the government for compensation.
The carrying value of the head office building, and the land on
which it stands was $6,3 million, as at 31st December 2XX4.’
(iv) the destruction of a major operating unit by a fire after the
balance sheet date;
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(vii) abnormally large changes, after the Reporting Period, in
asset prices, or foreign exchange rates;
EXAMPLE
‘On January 20th 2XX5, the directors were notified that Big
Investment Company had purchased 65% of the ordinary shares
of the bank from Small Investment Company.
EXAMPLE
Your bank has invested heavily in South American stocks, and
has investments worth $100 million at 31st December 2XX4.
Big Investment Company has stated that it wishes to buy the
remaining 35% of the ordinary shares, and intends to notify
shareholders of the terms of the intended purchase over the next
2 months.’
On January 19th 2XX5, a series of floods hit the region, causing
major industrial devastation. Stock markets plummet, and remain
very depressed until the date of approval of your financial
statements: February 18th.
A bank should disclose a description of such transactions,
including when such transactions involve capitalisation, bonus
issues, or share splits (or reverse share splits).
On February 18th2XX5, the South American stocks are valued at
$30 million.
If the number of ordinary or potential ordinary shares outstanding
increases as a result of a capitalisation, bonus issue or share
split, or decreases as a result of a reverse share split, the
calculation of basic and diluted earnings per share for all periods
presented shall be adjusted retrospectively.
You do not change the figures in your financial statements to 31st
December 2XX4, but note the post-Reporting-Period decline of
these investments.
(viii) changes in tax rates, or tax laws enacted, or announced
after the Reporting Period, that have a significant effect on
current and deferred tax assets and liabilities;
If these changes occur after the Reporting Period but before the
financial statements are authorised for issue, the per share
calculations for the reporting period and any prior period financial
statements presented shall be based on the new number of
shares.
EXAMPLE –deferred tax -1
Your financial statements at 31st December 2XX4 have been
drawn up on the basis of a national income tax rate of 24%.
Your deferred tax liability forms a major liability in your balance
sheet.
The fact that per share calculations reflect such changes in the
number of shares shall be disclosed. In addition, basic and
diluted earnings per share of all periods presented shall be
adjusted for the effects of adjustments resulting from changes in
accounting policies accounted for retrospectively.
On January 30th2XX5, the government announces that the
income tax rate will fall to 18% at the start of 2XX6.
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If the effect of the new tax rate on the deferred tax asset will be
material, management shall disclose details of the change in the
income tax rate and its related effects on the bank, in the notes
to the financial statements.
You do not change the figures in your financial statements to 31st
December 2XX4, but note the future tax reduction, and its impact
on your deferred tax liability.
EXAMPLE–deferred tax -2
Management shall not adjust the amounts recognised in the
bank’s financial statements to reflect non-adjusting events after
the Reporting Period.
(ix) entering into significant commitments or contingent liabilities,
for example, by issuing significant guarantees;
A new income tax rate is enacted after the balance sheet but
before the date the financial statements are authorised for issue.
Should management consider this event as a non-adjusting
event?
EXAMPLE - major guarantees
Following the preparation of your financial statements at 31st
December 2XX4, but before their approval, your bank agrees to
provide major guarantees to your subsidiary’s correspondent
banker, in order to renew your facilities on more favourable
terms.
Background
A bank has deferred tax assets recognised in the balance sheet
at 31 December 20X1 in respect of unused tax losses that can
be used to reduce taxable income in future years. The income
tax rate used to calculate the deferred asset was 40%, which
was the current rate of tax applicable at the balance sheet date.
You do not change the figures in your financial statements to 31st
December 2XX4, but provide details of the guarantees and the
assets provided as security.
(x) commencing major litigation arising solely out of events that
occurred after the Reporting Period.
On 1 January 2XX2 a new president came to power and on 17
January 2XX2 the income tax rate was reduced to 33%.
EXAMPLE –law suit
Following the preparation of your financial statements at 31st
December 2XX4, but before their approval, your bank receives
notice that the government intends to sue the company for $8
million for anti-competitive behaviour. (At the balance sheet date,
your bank had no reason to anticipate this.)
Solution
The change in the income tax rate was announced (and enacted)
after the Reporting Period, therefore it is a non-adjusting event.
The change in the tax rate is an event that occurred after the
year-end. Management shall not adjust the amounts recognised
in its financial statements because of this event.
You do not change the figures in your financial statements to 31st
December 2XX4, but note the intention of the government.
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The transaction has still to be approved by the Group’s
shareholders.
Sample Note - 1
(taken from Illustrated Corporate Financial Statements – 2002,
PwC)
Regulatory approval is not expected until the end of 2007. Due to
the stage of negotiations, the estimate of financial effect cannot
yet be made reliably.
Post-Reporting-Period event
On 1 March 2003 the Group acquired a 100% interest in [name
of company] which produces bank software, and is incorporated
in [name of country].
8. Appendix
The consideration of Local Currency 7,950 was settled in cash.
Specific Areas
The fair value of the net identifiable assets of the company at the
date of
acquisition was Local Currency 5,145.
Business Combinations
Business combinations effected after the Reporting Period, and
before the date on which the financial statements are approved
for issue, are disclosed if they are material.
Goodwill arising on this acquisition of Local Currency was 2,805.
[Name of company] will be consolidated with effect from 1 March
2003.
Inventories
The sale of inventories after the reporting period may give
evidence about their net realisable value at the end of the
reporting period.
Sample Note – 2
(taken from Illustrative Consolidated Financial Statements 2006
– Banks, PwC)
Discontinuing Operations
If assets attributable to a discontinuing operation, have been
sold, or are the subject of binding sale agreements, entered into
after the Reporting Period, but before the board approves the
financial statements for issue, the financial statements should
include the appropriate disclosures, if the effects are material.
Events after the Reporting Period
On 13 March 2007, the Group announced its intention to acquire
ANM Bank.
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Provisions, Contingent Liabilities and Contingent Assets
2. 1. On 29 January 2XX7, management of a bank completes
draft financial statements for the year to 31 December
2XX6.
2. On 4 February 2XX7, the board of directors reviews the
financial statements and approves them for issue.
3. On 15 February 2XX7, the undertaking announces its
profit and selected other financial information.
4. On 18 March 2XX7, The financial statements are made
available to shareholders, and others.
5. On 25 April 2XX7, the shareholders approve the financial
statements at the annual meeting.
6. On 29 April 2XX7, the approved financial statements are
then filed with a regulatory body .
Which of the above dates marks the end of the period covered
by IAS 10?
A management, or board, decision to restructure taken before
the balance sheet date does not give rise to a constructive
obligation, at the balance sheet date, unless the undertaking has,
before the balance sheet date:
(i) started to implement the restructuring plan; or
(ii) announced the main features of the restructuring plan to
those affected by it, in a sufficiently specific manner to raise a
valid expectation in them that the undertaking will carry out the
restructuring.
If a bank starts to implement a restructuring plan, or announces
its main features to those affected, after the Reporting Period,
disclosure is required under IAS 10, if the restructuring is
material.
3.
9. Multiple Choice Questions
1. IAS 10 identifies the period covered by these events as
starting immediately after the Reporting Period, and ending at
the date of:
1. Issue of the financial statements.
2. Approval of the financial statements.
3. Publication of the financial statements.
1. On 14 February 2XX8, the management of a bank
approves financial statements for issue to its supervisory
board. The supervisory board is made up solely of nonexecutives, and may include representatives of employees,
and other outside interests.
2. On 21 February 2XX8, the supervisory board approves
the financial statements.
3. On 10 March 2XX8, the financial statements are made
available to shareholders, and others.
4. On 17 April 2XX8, the shareholders approve the financial
statements at their annual meeting.
5. On 25 April 2XX8, the financial statements are filed with
a regulatory body.
Which of the above dates marks the end of the period covered
by IAS 10?
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that the amount of a previously-recorded impairment loss
for that asset needs to be adjusted.
4. If there is a public announcement of profit, or other
information,
You need to:
1. The period ends for IAS 10 purposes.
2. The period ends only when the supervisory board
approves the IFRS financial statements.
3. The period ends only when the management
approves the IFRS financial statements.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
8. You learn of the bankruptcy of a customer, that occurs
after the Reporting Period. You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
5. There is a settlement, after the Reporting Period, of a
court case that
confirms that the undertaking had a present obligation, at
the balance
sheet date. You need to:
9. You learn of the determination after the Reporting Period
of the cost of assets purchased.
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
6.There is receipt of information, after the Reporting Period
indicating
that an asset was impaired at the balance sheet date.
10. You learn of a change to the proceeds from assets sold,
before the balance sheet date.
You need to:
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
7. There is receipt of information, after the Reporting Period
indicating
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11.You receive the calculation of the amount of profitsharing payments, relating to the period of the financial
statements, after the Reporting Period.
You need to:
15. You announce plans to reorganise your group, between
the balance sheet date, and the date when the financial
statements are approved for issue.
The plans include the disposal of a major division.
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
12. You are informed of a fraud that shows that financial
statements that you are about to approve to be incorrect.
16. Your company declares a dividend, between the balance
sheet date, and the date when the financial statements are
approved for issue.
You need to:
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
13. You learn of a decline in market value of investments,
between the balance sheet date, and the date when the
financial statements are approved for issue.
You need to:
17. Your board decides to sell the assets of the bank and
liquidate it, between the balance sheet date, and the date
when the financial statements are approved for issue.
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
14. You make a major acquisition, between the balance
sheet date, and the date when the financial statements are
approved for issue.
You need to:
18. A client goes into liquidation, between the balance sheet
date, and the date when the financial statements are
approved for issue.
The client owes you a large amount of money, and your
bank will not survive the loss.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
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You need to:
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
19. A client goes into liquidation, between the balance sheet
date, and the date when the financial statements are
approved for issue.
The client owes you a large amount of money.
You are unable to secure financing to ensure the bank’s
survival before the financial statements are to be approved.
You need to:
10. Answers to multiple-choice questions:
1. 2
2. 2
3. 1
4. 3
5. 1
6. 1
7. 1
8. 1
9. 1
10. 1
11. 1
12. 1
13. 2
14. 2
15 .2
16. 2
17. 1
18. 1
19. 1
20. 1
21. 3
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
20. Your bank has been sued for anticompetitive behaviour.
This has been denied by your bank, and there was only a
contingent liability for $ 10 million your financial statements
at 31st December 2XX4.
On January 4th 2XX5, the court awards $10 million damages
against your bank.
You need to:
1. Adjust the financial statements.
2. Leave the financial statements, but note the details.
3. Ignore it.
21. 5% of your assets are held in Euros. Your currency
loses 1% of its value against the Euro before the financial
statements are approved.
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