NZ IAS 10 Events after the Reporting Period

Objective The Standard prescribes: When an entity should adjust its financial statements for events after the reporting period; and The disclosures an entity should give (para 1)

Important Dates Reporting period referred to commonly as ‘balance date’ end of the financial period (typically 12 months) for many New Zealand companies this is 31 March Date financial report is authorised for issue for companies: date the Directors’ statement of authorisation is signed for other entities: date of final approval of the report by the entity’s management or governing body

Event after reporting period What is it? An event after the reporting period includes all events up to the date when financial statements are authorised for issue (para 7) These are classified as: Adjusting events Non-adjusting events

Adjusting events Events that provide evidence of conditions that existed at the end of the reporting period – this can be additional evidence of existing conditions or revelation for the first time of a condition that existed Can be both favourable and unfavourable

Examples of Adjusting Events Receipt of information indicating that an asset was impaired at the end of the reporting period. e.g. a customer goes into liquidation in which case the amount owing at the end of the reporting period would become a bad debt Determination after the end of the reporting period of the cost of assets purchased. e.g. sale of inventory post-reporting period that indicates its NRV is lower than cost Determination after reporting period of amount of profit sharing or bonus payments Discovery of fraud or errors showing that the financial statements are incorrect

Post reporting period settlement of a court case may confirm a present obligation at the end of the reporting period – so contingent liability can become a provision New information might come to light revealing for the first time a condition that existed at the end of the reporting period. e.g. the destruction of a building at a remote site If post-reporting period an entity is shown to no longer be a going concern, financial statements can not be prepared on a going concern basis

Disclosure requirements NZ IAS 10 requires adjustments to amounts in financial statements to reflect adjusting events after the reporting period (para 8) These ‘adjusting events’ would be recognised in an entity’s financial statements either by: being brought to account (if relating to an item that would be brought to account); or included by way of a note (if relating to an item that would be disclosed by way of a note, e.g. a contingent liability)

Non-adjusting events can be both favourable and unfavourable Non-adjusting events: those that are indicative of conditions that arose after the reporting period Non-adjusting events: can be both favourable and unfavourable provide evidence about new conditions

Examples of Non-Adjusting… All these events are after the reporting period: Announcing a plan to discontinue an operation Announcing or commencing major restructuring Major business combination or an entity disposing of a major subsidiary Destruction of property/major plant by fire Purchases of major assets Issue of new share capital or other major ordinary share transactions Commencing major litigation where events giving rise to the litigation occurred after the reporting period

Disclosure requirements An entity should not adjust its financial statements to reflect non-adjusting events (para 10) For material ‘non-adjusting events’ (para 21) an entity must disclose: nature of the event; and an estimate of its financial effect; or a statement that such an estimate cannot be made Note that dividends proposed or declared after the reporting period are not to be recognised as a liability (para 12).