Non-adjusting events

Learning objectives

• Distinguish a decline in value after the end of the reporting period from evidence of impairment that existed at the end of the reporting period.L1, L2, L3
• Calculate the effect of a non-adjusting event (change in fair value, loss from a casualty) for disclosure purposes, without changing the amounts recognised.L2, L3
• Justify not adjusting for an event that is indicative of a condition that arose after the end of the reporting period.L2, L3

Normative references

• IAS 10 §3Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. Two types are distinguished: those that provide evidence of conditions that existed at the end of the reporting period (adjusting events) and those that are indicative of conditions that arose after the reporting period (non-adjusting events).
• IAS 10 §10An entity does not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period.
• IAS 10 §11Example: a decline in the fair value of investments between the end of the reporting period and the date of authorisation for issue does not normally relate to their condition at the end of the reporting period but reflects subsequent circumstances; the amounts recognised for those investments are not adjusted, nor are the disclosures about them updated on that account.
• IAS 10 §21If non-adjusting events after the reporting period are material, non-disclosure could reasonably be expected to influence the decisions of primary users; for each material category, the entity discloses the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.
• IAS 10 §22Examples of non-adjusting events that would generally result in disclosure: a major business combination or the disposal of a major subsidiary; the announcement of a plan to discontinue an operation; major purchases of assets, the classification of assets as held for sale, other disposals of assets or the expropriation of major assets; the destruction of a major production plant by a fire; announcing, or commencing the implementation of, a major restructuring; major ordinary share transactions; abnormally large changes in asset prices or foreign exchange rates after the reporting period; 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; entering into significant commitments or contingent liabilities, for example by issuing significant guarantees; commencing major litigation arising solely out of events that occurred after the reporting period.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

22 questions

• An entity does not adjust the amounts recognised to reflect non-adjusting events after the reporting period.L1
• A fall in the fair value of investments between the reporting date and the authorisation date must be reflected in their carrying amount at the reporting date.L1
• The destruction of a major plant by a fire after the reporting period is a non-adjusting event.L2
• Between the reporting date and authorisation, which fact reveals a condition arising after the reporting date, without changing the amounts recognised?L1
• Why is a fall in the fair value of investments after the reporting period normally not adjusted?L2
• After a sharp post-period fall in its investments, Plundard wonders whether it should change the disclosures already prepared about those investments at the reporting date. What is the answer?L2
• A new corporate income tax rate is enacted one month after the reporting date and significantly changes the entity's deferred taxes. How is it treated?L2
• Which of these events after the reporting period does IAS 10 cite as non-adjusting and generally requiring disclosure?L2
• The value of an unlisted investment held by Plyrian falls in February. Which factors suggest that part of this fall reveals a condition that already existed at the reporting date?L3
• Plerouël's listed investments are worth {fair_value_at_year_end} at 31 December and {fair_value_at_authorisation} at the authorisation date, after a general market fall in February. What amount should be recognised at the reporting date and what fall should be quantified for disclosure?L2
• Plorys holds {shares_held} listed shares measured at fair value. The price is {price_at_year_end} at the reporting date and then {price_at_authorisation} when the accounts are authorised, following a profit warning issued by the issuer in January. Quantify the amount at the reporting date and the fall.L2
• Plotard's main warehouse, with a carrying amount of {warehouse_carrying_amount} at 31 December, is destroyed by fire on 10 February. The insurer is expected to pay {expected_insurance} (case data). What amount should be kept at the reporting date and what net loss should be estimated for disclosure?L3
• At 31 December, Pléscian's copper inventory is carried at {inventory_at_year_end}, its net realisable value then being higher. In January, an abnormally large price change brings its value down to {value_after_price_fall}. What amount should be kept at the reporting date and what effect should be quantified for disclosure?L3
• Quaimys reduces its listed investments at 31 December to their value at the authorisation date, after a market fall in February. What is the error?L2
• A flood in January destroys a plant of Queutane, intact at 31 December. The accountant recognises an impairment loss in the accounts for the year ended 31 December. What is the error?L2
• Quolvenne treats as entirely post-period the fall in value, in February, of an unlisted investment, although the investee's audit reveals losses already incurred before the reporting date. What is the error?L3
• Three weeks after the reporting date, Quuscia signs the acquisition of a competitor that will double its size. How is it treated in the accounts for the year just ended?L2
• In February, the State expropriates a major plot of land of Quusian for an infrastructure project decided in January. The land was being used normally at the reporting date. How should the treatment be justified?L2
• Quymade's deferred taxes at 31 December are measured at the rate in force at that date. In February, a law significantly raising that rate is enacted. The finance director wants to remeasure the reporting-date deferred taxes. What is the answer?L3
• Quyrard's board approves a major restructuring in January, announced to staff in February. No decision or announcement existed at 31 December. The controller proposes a provision at the reporting date 'because the difficulties date from the year'. What should be concluded?L3
• After a geopolitical crisis triggered in January, Quélal's listed portfolio loses a quarter of its value before the accounts are authorised. The audit committee asks why the accounts at 31 December are not adjusted. Write the justification note.L3
• Between the reporting date and authorisation, Quésal experiences three events: a fire at a small archive building, the acquisition of a group equal to 40% of its size and a sharp move in a currency in which it holds large receivables. Write the classification and disclosure note.L3