CAT / FIA FFA Syllabus F. Preparing Basic Financial Statements - Adjusting or non-adjusting - Notes ^{2 / 3}

Types of events

Two types of events can be identified

1. those that provide evidence of conditions that existed at the end of the reporting period (adjusting events); and

2. those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events).

Examples of adjusting events given in IAS 10 are

• the resolution of a court case, as the result of which a provision has to be recognised instead of the disclosure by note of a contingent liability;

• evidence of impairment of assets;

• bankruptcy of a major customer;

• sale of inventories at prices suggesting the need to reduce the figure in the Statement of Financial Position to the net value actually realized;

• discovery of fraud or errors that show the financial statements were incorrect

Examples of non-adjusting events given in IAS 10 are

• decline in market value of investments;

• announcement of a plan to discontinue part of the enterprise;

• major purchases and sales of assets;

• destruction of a major asset by fire etc;

• sale of a major subsidiary;

• major dealings in the company's ordinary shares;

Further provisions covered by IAS 10

1. Authorisation for issue of financial statements

   An enterprise should disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the owners or others have the power to amend the financial statements after issue, that fact should be disclosed.

2. Going concern

   If the management decides after the end of the reporting period that it is necessary to liquidate the enterprise, the financial statements should not be prepared on a going concern basis.

3. Dividends

   If an entity declares dividends after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. That is a non-adjusting event.