Events aftre reporting period Ind As- 10

IV Semester M.Com

1. Events After the Reporting Period Ind AS - 10 Mr. Sathish. V Assistant Professor PES Institute of Advanced Management Studies NH-206, Sagar Road, Shivamogga

2. Events After the Reporting Period (Ind AS 10) OBJECTIVE There will always be a time delay between the end of the reporting period and the date on which the financial statements are authorized for issue. During the delay, there will almost certainly be events that will take place and the question arises as to how those events should be accounted for in the financial statements. Some of these events might indicate the need for adjustments to the amounts recognized in the financial statements or require disclosure. Ind AS 10 addresses the effect of such events on the information that is provided in the financial statements.

3. SCOPE OF THE STANDARD IAS 10 should be applied in the accounting for and disclosure of events after the reporting period. Events after the reporting period are those events, favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue. This standard prescribes the appropriate accounting treatment for such events and whether adjustments or simple disclosure is required. This standard also requires that an entity should not prepare its financial statements on a going-concern basis if events after the reporting period indicate that the going-concern assumption is not appropriate.(Accrual basis of Accounting-Entering the Expenses when its occurred). KEY CONCEPTS Events after the reporting period are those events that: provide evidence of conditions that existed at the end of the reporting period (that is, the origin of the event is in the current reporting period) and are adjusting events; and are indicative of conditions that arose after the reporting period and are no adjusting events.

4. ACCOUNTING TREATMENT : Amounts recognized in the financial statements of an entity are adjusted for events occurring after the reporting period that provide additional information about conditions existing at the end of the reporting period, and therefore allow these amounts to be estimated more accurately. For example , adjustments could be required for a loss recognized on a trade debtor that is confirmed by the bankruptcy of a customer after the reporting period. If events occur after the reporting period and the events do not affect the condition of assets and liabilities at the end of the reporting period, no adjustment is required. However, disclosure should be made of such events if they are of such importance that nondisclosure would affect decisions made by users of the financial statements. For example , it should be disclosed if an earthquake destroys a major portion of the manufacturing plant of the entity after the reporting period or an event were to alter the current or noncurrent classification of an asset at the end of the reporting period, as per IAS 1 (Presentation of financial statements).

5. Dividends or a liability for dividend should only be recognized if appropriately declared and authorized and thus are no longer at the discretion of the entity. Dividends that are proposed or declared after the end of the reporting period but before the approval of the financial statements should not be recognized as a liability at the end of the reporting period but should be disclosed in the notes to the financial statements.

6. PRESENTATION AND DISCLOSURE : Disclosure requirements related to the date of authorization for issue are as follows: ■ The date when financial statements were authorized for issue; ■ The name of the person who gave the authorization; and ■ The name of the party (if any) with the power to amend the financial statements after issuance. For non adjusting events that would affect the ability of users to make proper evaluations and decisions, the following should be disclosed: ■ The nature of the event; ■ An estimate of the financial effect; and ■ A statement if such an estimate cannot be made. Disclosures that relate to conditions that existed at the end of the reporting period should be updated in light of any new information about those conditions that is received after the reporting period.

7. EXAMPLE: EVENTS AFTER THE REPORTING PERIOD EXAMPLE Example 1 Entity WIPRO exports a certain component to a manufacturer based in a foreign country. This foreign manufacturer uses this component supplied by Entity WIPRO in order to produce widgets. At the end of its reporting period (June 2018), Entity WIPRO has unusually high levels of stock due to lower-than-expected orders from its foreign manufacture. On August 15, 2018, before the financial statements of Entity WIPRO are authorized for issue, the government of the country where the manufacture is based announces that the components supplied by Entity WIPRO will only be procured within the country of the manufacturer (that is, the components will not be imported but instead will be acquired locally). Entity WIPRO does not have any alternative markets for the components. Is the announcement by the government an adjusting or a non adjusting event?

8. EXPLANATION The announcement by the government of the foreign country to impose restrictions on imports of the components supplied by Entity WIPRO is an adjusting event because it provides evidence of the conditions that existed at the end of the reporting period. The unusually high levels of inventory at the end of the reporting period indicated low demand. The announcement by the government confirmed that the inventory should be written down as there is no demand for it.

9. EXAMPLE 2 A corporation with a financial year end of June 30 has an amount of $20 million that is due from Debtor A as of June 30, 2018. The corporation provided for impairment on June 30, 2018 of $5 million against the gross value of $20 million due from Debtor A. On July 31, 2018, before the financial statements were authorized for issue, Debtor A goes bankrupt and files for protections from its creditors. Is Debtor A’s bankruptcy and filing for protection from its creditors an adjusting or non adjusting event? EXPLANATION : The bankruptcy and filing for protection from its creditors of Debtor A after the end of the reporting period provides evidence of the fact that the amount receivable from Debtor A was impaired at the end of the reporting period. This is an adjusting event and the corporation should impair the amount receivable from Debtor A as of June 30, 2018.

10. EXAMPLE 3 Shortly after its financial year end of June 30, 2017, but before the financial statements are authorized for issue, Entity B’s inventory was destroyed by a fire which resulted in a loss of $2 million. Is this event an adjusting or a non adjusting event?

11. EXPLANATION This event is a non adjusting event as it is indicative of a condition (fire) that arose after the end of the reporting period. Because this is a non adjusting event, no adjustments will be made to the amounts recognized in the financial statements of Entity B’s for the year ending June 30, 2018. However, if the loss of $2 million is consequential enough that its nondisclosure would influence the economic decisions of the users of financial statements, disclosure of the nature of the event, the estimate of its financial effect, or a statement if such an estimate cannot be made, would be required.

12. EXAMPLE 4 There is a Fraud in the purchase raw materials and supplier is a part of the ordinary activities of the company. Money has been advanced but materials were not delivered, the disputed amounts was accounted for as advance against supplier. An enquiry committee has been formed before the balance sheet date. The committee submitted the report after the reporting date but before the authorization of FS. and the reporting reveals that the advance has been given to a facilitator foreign party who is no longer traceable .the company is in the process of collecting future evidence about prospective supplier. Hence how should co accounts for the advance made ? And is it an adjusting or Non adjusting event ?

13. Explanation : Its an adjusting event reporting after date. the money has been advanced and committee has been formed ,hence this shows there is an evidence and the supplier is no more traceable. and the company need to maintain 100% provision towards the it in the FS.

14. Summary Event after the reporting period:  An event, which could be favorable or unfavorable, that occurs between the end of the reporting period and the date that the financial statements are authorized for issue. Adjusting event:  An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. Non-adjusting event:  An event after the reporting period that is indicative of a condition that arose after the end of the reporting period.

15. Accounting Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period. Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting period. -  If an entity declares dividends after the reporting period, the entity shall not recognize those dividends as a liability at the end of the reporting period. That is a non-adjusting event.

16. Disclosure Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made. A company should update disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that it receives after the reporting period about those conditions. Companies must disclose the date when the financial statements were authorized for issue and who gave that authorization. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact.