FRS110 - Events After Balance Sheet Dates Introduction: • The information provided in financial statements should reflect effects of transactions and events that have occurred during the accounting period and ALSO other material transactions and events that have occurred after the financial year-end but before the accounts are authorized for issue, which may affect the performance and position of the enterprise. Definitions: • FRS 110 • those events, favorable and unfavorable, that • occur between the balance sheet date and the date when the financial statements are authorized for issue. Two types of events can be identified: – those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and – those that are indicative of conditions that arose after the balance sheet date (nonadjusting events after the balance sheet date). What’s the meaning of after the balance sheet date? B/S date (31st Dec) FS authorised Issue FS for issue – which date?? • FS 1) preliminary – income statements, balance sheet 2) unaudited FS – within 4 months after B/S date 3) audited FS – within 6 months after B/S date Examples: • The management of an entity completes draft financial statements for the year to 31 December 20X1 on 28 February 20X2. On 18 March 20X2, the board of directors reviews the financial statements and authorizes them for issue. The entity announces its profit and selected other financial information on 19 March 20X2. The financial statements are made available to shareholders and others on 1 April 20X2. The shareholders approve the financial statements at their annual meeting on 15 May 20X2 and the approved financial statements are then filed with a regulatory body on 17 May 20X2. • The financial statements are authorized for issue on 18 March 20X2 (date of board authorization for issue). • Refer example 2 Events associated with EABSD • adjusting events after the balance sheet date • non-adjusting events after the balance sheet date FRS 110: Further explanations The Balance Sheet date Fin. State For the period Those that provide Further evidence Adjusting Events Between Favourable and unfavourable Those that are Indicative of condition Non -Adjusting Events Date of fin. State Authorised for issue Future Events Special Issue Dividend Going Concern Recognition and Measurement • Adjusting Events after the balance sheet dates – adjust the amounts recognized in its financial statements to reflect adjusting events after the balance sheet date. • Non Adjusting Events after the balance sheet dates – not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the balance sheet date. Adjusting Events • • • • • • • • Measurement of bad and doubtful debts Determining the NRV of inventory Court case Impairment of assets Acquisitions or disposal of assets Profit sharing or bonus (constructive obligation) Fraud Refer example 3 Adjusting Events • Eg: Resolution of a court case 31st Dec resolution authorised FS disclose recognised contingent provision liability (if the amt cannot be estimated) Non – Adjusting Events • Examples: • major business combination, restructuring, • • • • change in tax rate/law, abnormally changes in foreign exchange rates Announcing a plan to discontinue an operation Major purchase of assets or expropriation of major assets by government The destruction of major production plan by fire Refer example 4 – no adjustment but disclosure : – (a) the nature of the event – (b) the estimate of the financial effect , if any Special issue :Dividend • proposed and declared dividends AFTER b/s date should NOT be recognised as liability in balance sheet. • FRS 101 allowed the dividends to be disclosed: – on the face of balance sheet as a separate component of equity – in the notes to FS Special issue :Going concern • Management intends to liquidate the entity or cease trading, GC assumption may no longer appropriate. • FRS 101 requires to changes its basic of accounting and disclosed in the notes to FS. • Assets may measure at FV less cost to sell Additional Disclosure: • date of authorisation • updating disclosure on conditions after the b/s • date for non-adjusting events : ONLY IF nondisclosure will affect ability of user to make proper evaluation and decision, an entity should disclose any significant category of non – adjusting events: – Nature of events – Estimates of the financial effects or a statement that such an estimate cannot be made
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