Subsequent Events (IAS 10): Corona as a Model, When to Adjust the Statements and When to Disclose Only?
Subsequent Events (IAS 10): Corona as a Model, When to Adjust the Statements and When to Disclose Only?
Subsequent events under IAS 10 can flip your decision from “close and approve” to “adjust figures” or “material disclosure”. This guide explains the difference between Adjusting and Non-adjusting Events (Events After Reporting Period), and how to issue a clear professional judgment—with a practical example like Covid.
- Definition of subsequent events and period limits: from year-end to authorization date.
- The practical rule for distinguishing between Adjusting and Non-adjusting Events.
- Decision Tree to help you judge quickly.
- Real examples + how to write disclosure that supports the user and auditor.
1) What are Subsequent Events? & Period Limits
In IAS 10, they are called: Events After the Reporting Period. These are events (favorable or unfavorable) that occur between:
- The end of the reporting period (e.g., 31/12/2025), and
- The date when the financial statements are authorized for issue (Authorization date).
2) Adjusting vs Non-adjusting: The Core Difference
Judgment in Subsequent Events revolves around one question: Does the subsequent event provide evidence of conditions that existed at the end of the reporting period?
| Type | Practical Criteria | Treatment | Quick Example |
|---|---|---|---|
| Adjusting Event | Provides evidence of conditions that existed before/at balance sheet date. | Adjust figures in the statements (may follow with disclosure). | Customer bankruptcy after year-end confirms insolvency existed before year-end. |
| Non-adjusting Event | Reflects conditions that arose after the balance sheet date. | No adjustment to figures — Disclose if material. | Major fire after year-end causing subsequent losses. |
3) IAS 10 Decision Tree (SVG)
Use this tree as a quick filter before diving into long details. It will help you reach a clear decision: Adjust or Disclose.
4) Common Practical Examples (With Correct Judgment)
4.1 Major Customer Bankruptcy after Year-End
If a major customer declares bankruptcy in January, and the fiscal year ended in December: Question: Does the bankruptcy confirm that the customer’s distress existed before 31/12? If yes (e.g. significant overdues before year-end), this is likely an Adjusting Event requiring adjustment of the Credit Loss Provision/Receivables write-down based on evidence.
4.2 Court Judgment/Settlement after Year-End
If a lawsuit existed before 31/12, then a judgment/settlement in January confirms an obligation that was already probable at year-end: This is likely an Adjusting Event to update the provision estimate. If the lawsuit arose entirely after year-end, it is usually Non-adjusting with disclosure if material.
4.3 Sharp Drop in Inventory Market Price after Year-End
If market prices drop sharply after 31/12 due to a decision or crisis appearing later, this tends to be Non-adjusting. But if indicators of decline existed before year-end (stagnation, slow-moving stock, returns…), the subsequent event might provide supporting evidence and become Adjusting.
Month-End Accruals & Adjustments JEs Library - Excel File
| Scenario | Were conditions existing before 31/12? | Result |
|---|---|---|
| Customer bankrupt in Jan, was delinquent before 31/12 | Yes | Adjusting (Adjust provision) |
| Warehouse fire in Feb | No | Non-adjusting (Disclose if material) |
| Settlement of lawsuit existing before year-end | Yes (Case existed) | Adjusting (Update provision) |
| Acquisition of subsidiary after year-end | No (Decision after year) | Non-adjusting (Material disclosure) |
5) Covid Model: How Judgment Varies by Date?
The Covid example is excellent because it shows that the same “Event” can be Non-adjusting for one period, then become Adjusting for another—depending on year-end timing and available evidence.
5.1 For Statements ending 31/12/2019
In many cases, the spread of Covid and its fallout after 31/12/2019 was considered a major subsequent development, thus often classified as Non-adjusting with Material Disclosure (if effects were expected/significant). However, special cases existed: companies with operations/suppliers heavily affected where strong indicators existed before 31/12… judgment might change.
5.2 For Statements ending 31/12/2020 (or later)
Since pandemic effects were already existing before end of 2020 in most sectors, many developments after 31/12/2020 became “evidence” supporting estimates required at balance sheet date (asset impairment, provisions, inventory valuation…), making them in many cases Adjusting Events or at least triggers to update estimates.
6) What to Disclose? Writing Good Notes for Non-adjusting Events
When classifying an event as Non-adjusting but Material, practically required is: Description of nature + Estimate of financial effect if possible, or statement that reliable estimate cannot be made.
| Component | What to write? | Quality Tip |
|---|---|---|
| Nature of Event | Specific description: What happened? Where? When? | Avoid vague terms like “Major Event” without details. |
| Expected Effect | Numeric estimate if possible or range/scenario | If unable to estimate, state why not possible now. |
| Relation to Company | Items affected? (Revenue/Liquidity/Contracts/Risk) | Link disclosure to decision point for user. |
7) Going Concern: When Events Signal Danger
One of the most critical aspects of Subsequent Events is they may reveal that the Going Concern assumption is no longer appropriate: e.g., loss of critical funding, stopping main activity, or cash flow collapse making continuity unrealistic.
8) Workflow & Documentation (Audit-ready)
To make your decision defensible, apply a simple path for evaluation and documentation:
- Define Period Precisely: From year-end to authorization date.
- Gather Potential Events: From Finance, Legal, Sales, Ops, Risk Management.
- Test “Existence of Conditions”: Were indicators present before year-end? What evidence?
- Decide Treatment: Adjust/Disclose/None (if immaterial).
- Write Decision Summary: One page: Event, Evidence, Judgment, Treatment, Approver.
- Check Consistency: Statements + Notes + Management Report (if any) must not conflict.
9) Quick Checklist Before Authorization
- Documented Authorization Date and who authorized?
- Checked subsequent events for: Loans/Funding, Lawsuits, Major Customers, Inventory, Assets, Key Contracts?
- For each event: Is it evidence of pre-existing conditions or conditions arising later?
- If Non-adjusting but Material: Does disclosure state Nature and Effect or reason for no estimate?
- Checked event impact on Going Concern if danger signs exist?
- Consistency check between Statements/Notes and no conflict with internal/external reports?
10) Frequently Asked Questions
Do we look at subsequent events until actual publication or authorization date?
IAS 10 focuses on events up to the date of authorization for issue. After that, statements are not adjusted for this reason, though other disclosure/communication requirements might exist outside IAS 10 scope.
If an event is immaterial… do I write about it?
Usually no. Disclosure standard is linked to materiality. But if an event is “financially immaterial” but changes user decisions (Risk/Continuity/Reputation), it might merit professional disclosure.
Can a subsequent event be “Partially Adjusting”?
It can happen that a subsequent event affects an “estimate” already required at balance sheet date (so adjust), while simultaneously requiring disclosure for other aspects (like uncertainty). Decision is based on evidence and documenting judgment.
How to know if Covid (or similar crisis) is Adjusting or Non-adjusting?
Ask: What was known/existing before balance sheet date? What evidence? Then classify based on that. The same crisis treatment might change from year to year.
Most common mistake in applying IAS 10?
Confusing “Size of Event” with “Nature relative to Balance Sheet Date”, or failing to document judgment/evidence, making the decision weak against audit.
11) Conclusion
Subsequent Events are not just a note item; they test the quality of your professional judgment. Remember the rule: Evidence of existing conditions ⇒ Adjust, Conditions arose later ⇒ Disclose if Material. And with any Going Concern danger sign, treat seriously as it may go beyond disclosure to changing the basis of preparation.