1. Scope & Objective –
(a) Scope –
This standard shall be applied in the accounting for and disclosure of events after the reporting period.
(b) Objective – Ind AS prescribes:
- Circumstances when an entity should adjust its financial statements for events after the reporting period; and
- Disclosures which an entity has to give about the date when the financial statements were approved for issue and about events after the reporting period
2. Meaning –
(a) Event occurring after the reporting period are defined as ‘events which occur between the end of the reporting date and the date when the financial statements are approved by the Board of Directors in case of a company’ and ‘by the corresponding authority in case of any other entity’.
(b) These events may be Adjusting and Un-adjusting.
- Adjusting events – Those that provide evidence of conditions that existed at the end of the reporting period.
- Non-Adjusting events – Those that are indicative of conditions that arose after the reporting period.
(c) Events after the reporting period include all events up to the date when the financial statements are authorized for issue, even if those events occur after the public announcement of profit or of other selected financial information.
3. General points-
(a) The process involved in authorizing the financial statements for issue will vary depending upon the management structure, statutory requirements and procedures followed in preparing and finalizing the financial statements.
(b) In some cases, an entity is required to submit its financial statements to its shareholders for approval after the financial statements have been issued. In such cases, the financial statements are authorized for issue on the date of issue, not the date when shareholders approve the financial statements.
(c) In some cases, the management of an entity is required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. In such cases, the financial statements are authorized for issue when the management authorizes them for issue to the supervisory board.
4. Adjusting events –
(a) An entity should adjust its financial statements for events after the reporting date that provide further evidence of conditions that existed at the reporting date.
(b) Notwithstanding anything about adjusting or non-adjusting events, where there is a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the agreement by lender before the approval of the financial statements for issue, to not demand payment as a consequence of such breach, shall be considered as an adjusting event.
5. Adjusting events examples-
(a) Settlement of a court case that confirms that an entity has a present obligation at the end of the reporting period
(b) Receipt of an information that an asset was impaired or that previous impairment requires reversal e.g. bankruptcy and inventory valuation
(c) Profit sharing or bonus, if an entity has legal or constructive obligations
(d) Discovery of fraud or errors which shows that FS are incorrect
(e) In certain cases, cost of assets purchased or proceeds from assets sold
(f) Ind AS 33 – if an entity issue of bonus shares during subsequent period, it has to consider these shares for working EPS for current period as well as comparative period. Same treatment for share split or reverse split.
6. Non-Adjusting events –
(a) An enterprise should not adjust its financial statements for events after the reporting date that are indicative of conditions that arose after the reporting date.
(b) It shall disclose the following for each material category of non-adjusting event after the reporting period:
1. the nature of the event; and
2. an estimate of its financial effect, or a statement that such an estimate can not be
(c) Example –
1. a major business combination after the reporting period Ind AS 103, ‘Business Combination’ ;
2. announcing a plan to discontinue an operation;
3. entering into significant commitments or contingent liabilities, for example – by issuing significant guarantees;
4. major purchases of assets, classification of assets as held for sale in accordance with Ind AS 105, ‘Non Current Asset Held for Sale and Discontinued Operations’ or exploration of major assets by government;
5. the destruction of a major production plant by a fire after the reporting period;
6. announcing or commencing the implementation of, a major restructuring;
7. major ordinary share transactions and potential ordinary share transaction after the reporting period;
8. abnormally large changes after the reporting period in asset prices or foreign exchange rates;
9. 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;
7. Dividends –
(a) If dividend to holders of equity instruments are proposed or declared after the reporting date, an entity should not recognize those dividends as liability. There is no obligation as on the reporting date.
(b) The entity would disclose if any dividend is declared or proposed after the reporting date but before the date of approval of financial statements.
(c) An enterprise may give the disclosure of proposed dividends either on the face of the balance sheet as an appropriation within equity or in the notes in accordance with Ind AS 1 ‘Presentation of Financial Statements’.
8. Going concern-
(a) An entity should not prepare its financial statements on a going concern basis if management determines after the reporting date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternatives but to do so.
(b) However, there should no longer be a requirement to adjust the financial statements where an event after the reporting date indicates that going concern assumption is not appropriate. In that case there is need for fundamental change in the basis of accounting rather than adjustment.
(c) Ind-AS 1 specifies required disclosure if:
1. The financial statements are not prepared on a going concern basis;
2. Management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. The events or conditions requiring disclosure may arise after the reporting period
9. First time adoption-Ind AS 101
I. Mandatory exceptions:
(a) An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
(b) An entity may need to make estimates in accordance with Ind AS at the date of transition to Ind AS that were not required at that date under previous GAAP. To achieve consistency with Ind AS 10, those estimates in accordance with Ind AS shall reflect conditions that existed at the date of transition to Ind AS. In particular, estimates at the date of transition to Ind AS of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.
10. Disclosure –
(a) Date of authorization for issue – An entity shall disclose the date when the financial statements were authorized for issue and who gave that authorization. If the entity’s owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact.
(b) Updating disclosure about conditions at the end of the reporting period: If an entity receives information after the reporting period about conditions that existed at the end of the reporting period, it shall update disclosures that relate to those conditions, in the light of the new information.
(a) Whether decline in market value of investments is an adjusting event – No
(b) Whether decline in net realizable of inventory is not an adjusting event – Yes
(Author Details- Abhishek Mittal, Sakshi Mittal, B. Com, ACA, M. No. – 9555460040)