Events after the reporting period
In financial reporting, understanding the treatment of events occurring after the reporting period is critical. Both the International Financial Reporting Standards (IFRS) and the IFRS for SMEs address this through IAS 10 and Section 32, respectively. This article explores the nuances of these standards, providing practical examples to clarify recognition and disclosure requirements.
1. Definition and Scope
Full IFRS (IAS 10)
IAS 10 defines events after the reporting period as those events, favourable or unfavourable, that occur between the end of the reporting period and the date the financial statements are authorised for issue. These events are classified into:
Adjusting events: Provide evidence of conditions that existed at the end of the reporting period.
Non-adjusting events: Indicate conditions that arose after the reporting period.
IFRS for SMEs (Section 32)
Section 32 aligns closely with IAS 10 but simplifies the language for smaller entities. It emphasises relevance and cost-effectiveness for SMEs.
2. Recognition of Adjusting Events
Adjusting events require adjustments to the financial statements because they provide additional evidence of conditions existing at the reporting date.
Example 1: Inventory Valuation
An entity with a reporting date of 31 December 2024 discovers on 20 January 2025 that inventory valued at
R 2,000,000 as of year-end has been damaged due to a fire on 15 December 2024.
Treatment:
The inventory should be written down to its net realisable value in the financial statements for 2024, as the condition (fire damage) existed at the reporting date.
Example 2: Litigation Settlement
A lawsuit ongoing at the reporting date is settled on 10 January 2025 for R 5,000,000, after the reporting date but before authorisation of the financial statements. The legal team’s assessment as of 31 December 2024 was that a loss was probable and estimated at R 4,500,000.
Treatment:
The financial statements for 2024 should recognise the settlement amount of R 5,000,000, as it confirms a condition existing at the reporting date.
3. Disclosure of Non-Adjusting Events
Non-adjusting events do not affect the financial position at the reporting date but require disclosure if they are material.
Example 1: Major Acquisition
On 5 February 2025, an entity acquires a competitor for R 50,000,000. The acquisition agreement was signed after the reporting date.
Disclosure:
The entity should disclose the nature of the event and an estimate of its financial effect, as this provides relevant information to users.
Example 2: Natural Disaster
A severe flood damages the entity’s main production facility on 15 January 2025, causing losses estimated at
R10,000,000.
Disclosure:
The entity should disclose the event and its financial impact, as it helps users understand potential future risks and implications for the entity’s operations.
4. Differences Between Full IFRS and IFRS for SMEs
5. Practical Considerations
Authorisation Date: Entities must document the date financial statements are authorised to determine the applicable events.
Materiality Assessment: Professional judgment is critical in assessing whether a non-adjusting event is material.
Communication: Timely communication with stakeholders is essential for significant non-adjusting events.
Example
A South African company with a reporting date of 30 June 2024 experiences a government announcement on 15 July 2024 regarding a new tax rate effective from 1 January 2025. As this tax rate is not effective at the reporting date, it is a non-adjusting event but should be disclosed due to its material impact on future profitability.
6. Conclusion
The treatment of events after the reporting period requires a clear understanding of the distinction between adjusting and non-adjusting events. By applying the principles of IAS 10 or Section 32 of IFRS for SMEs, accountants can ensure accurate and meaningful financial reporting. Practical examples, such as inventory valuation and natural disasters, underscore the importance of professional judgment and compliance with these standards.
By recognising and disclosing events appropriately, entities can enhance the reliability and transparency of their financial statements, thereby fostering trust among stakeholders.
To learn more on the topic of events after the reporting period, do not miss the webinar - Going Concern and Subsequent Events:
Date: 22 January, 2025
Time: available from 8:00
Hours: 1.5 hours
CPD Units: 2
Category: Accounting
Group: Channel 1: Compliance
Format: Webinar
🎓 Boost your knowledge on Going Concern and Subsequent Events 📈
📢 Join us on 15 January for an insightful 90 minutes webinar designed to help accountants confidently navigate the principles and requirements of Going Concern and Subsequent Events
🔑 What you’ll learn:
✅Definition and implications of the going concern assumption.
✅ Indicators of financial distress and factors that may challenge the going concern assumption.
✅ Types of events after the reporting period (adjusting vs. non-adjusting events).
✅ How to assess and disclose such events in financial statements.
✅ Explore practical examples and case studies to address common challenges in lease accounting.
✅ Real-world case studies demonstrating the importance of these concepts in ensuring transparency and accountability in financial reporting.
🌟 Why attend?
Stand out by mastering these essential competencies and earn 2 CPD units in accounting.
👩🏫 Your Presenter:
Faith Ngwenya, a seasoned accounting professional and leader in academia and industry standards, brings her wealth of experience to guide you through this critical topic.
💻 Format: Webinar
📅 Date: 22 January 2025
⏰ Time: Duration: 90 minutes
📚 CPD Units: 2
🔗 Don’t miss this opportunity! Register today and elevate your accounting skills.
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