IAS 10 provides guidance on how to account for events that occur after the end of the reporting period but before the financial statements are authorized for issue. Here are some examples of events after the reporting period and how they should be treated according to IAS 10:
- Adjusting event example:
An entity’s reporting period ends on December 31, 2022. On January 15, 2023, the entity receives new information about a legal case that was pending at the reporting date. The entity learns that it is probable that it will have to pay damages of $1 million. Since this information provides further evidence of a condition that existed at the reporting date, the entity should adjust its financial statements to reflect the liability of $1 million in the 2022 financial statements.
- Non-adjusting event example:
An entity’s reporting period ends on December 31, 2022. On January 15, 2023, the entity sells a significant asset for $10 million. Since the sale occurred after the reporting period, it is a non-adjusting event and should not be reflected in the 2022 financial statements. However, the entity should disclose the sale of the asset in the notes to the financial statements.
- Disclosures example:
An entity’s reporting period ends on December 31, 2022. On January 15, 2023, there is a significant earthquake in a region where the entity operates. The entity determines that the earthquake is a material non-adjusting event that may affect the entity’s financial position, financial performance, or cash flows. In this case, the entity should disclose the earthquake as a material non-adjusting event in the notes to the financial statements, including information on the nature and estimated financial effect of the event.
In summary, events after the reporting period should be carefully considered to determine if they require adjustment to the financial statements or disclosure in the notes to the financial statements. Judgment is required to determine whether an event is material and requires adjustment or disclosure.