Accounting Science

Review of IAS 10 Standard: Events After the Reporting Period

Posted by

mariam elghandour

March 15, 2025

On February 17, 2025

IAS 10 Standard, “Events After the Reporting Period,” addresses events that occur after the financial statement date (balance sheet date) but before the date the financial statements are authorized for issue. IAS 10 Standard specifies when an entity should adjust its financial statements to reflect these events and the disclosures required about them. In this article, we will review IAS 10 Standard, discuss its objectives, scope, and types of events after the reporting period, focusing on how to account for them, as well as highlighting the importance of this standard and its impact on the quality and reliability of financial reporting.

What are 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 (balance sheet date) and the date when the financial statements are authorized for issue.

Example:

If an entity’s financial year ends on December 31, 2023, and the financial statements are authorized for issue on March 15, 2024, then events after the reporting period are all events that occur between January 1, 2024, and March 15, 2024.

What is IAS 10 Standard: Events After the Reporting Period?

IAS 10 Standard is an International Financial Reporting Standard that specifies how to account for events after the reporting period in an entity’s financial statements. The standard provides guidance on:

Determining whether an event requires adjustment of the financial statements (adjusting event) or only disclosure (non-adjusting event).
How to adjust the financial statements for adjusting events.
The disclosures required about non-adjusting events.

Objectives of IAS 10 Standard:

Specify the Accounting Requirements for Events that Occur After the Balance Sheet Date: IAS 10 Standard determines when financial statements should be adjusted to reflect these events.
Improve the Quality and Relevance of Financial Information: IAS 10 Standard helps improve the quality of financial information by ensuring that financial statements reflect all significant events that have occurred up to the date of authorization for issue.
Enhance Transparency of Financial Reporting: IAS 10 Standard enhances the transparency of financial reporting by requiring disclosure of significant events that occurred after the balance sheet date.
Provide Useful Information for Decision-Making: IAS 10 Standard helps users of financial statements make informed economic decisions by providing them with information about significant events that may affect their assessment of the entity.

Scope of IAS 10 Standard:

IAS 10 Standard applies to all entities that prepare financial statements in accordance with International Financial Reporting Standards (IFRS). The standard addresses all types of events after the reporting period, whether favorable or unfavorable.

Types of Events After the Reporting Period:

IAS 10 Standard classifies events after the reporting period into two types:

Adjusting Events:
- Definition: Events that provide additional evidence of conditions that existed at the end of the reporting period (balance sheet date).
- Accounting Treatment: An entity must adjust its financial statements to reflect the impact of adjusting events.
- Examples:
  - Settlement of a court case after the reporting period, if the case related to an event that occurred before the reporting period.
  - Bankruptcy of a customer after the reporting period, if the bankruptcy resulted from a deterioration in the customer’s financial condition before the reporting period.
  - Sale of inventories after the reporting period at a price below cost, indicating that the net realizable value of the inventories was lower than their cost at the reporting period.
  - Discovery of fraud or errors after the reporting period that affect the financial statements.
  - The determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting date.
Non-adjusting Events:
- Definition: Events that are indicative of conditions that arose after the end of the reporting period (balance sheet date).
- Accounting Treatment: An entity does not adjust its financial statements to reflect the impact of non-adjusting events, but it must disclose them if they are material.
- Examples:
  - A major decline in the market value of investments after the reporting period.
  - A fire or natural disaster occurring after the reporting period.
  - Declaration of dividends after the reporting period.
  - Commencement of major litigation after the reporting period.
  - Issuance of new shares or bonds after the reporting period.
  - Major business combinations or disposals of major investments after the reporting period.
  - Significant changes in foreign exchange rates after the reporting period.

Materiality Principle:

The principle of materiality must be applied when evaluating whether an event after the reporting period is material and requires adjustment or disclosure. An event is considered material if its omission or misstatement could influence the economic decisions of users of the financial statements.

Disclosure Requirements under IAS 10 Standard:

Adjusting Events: An entity must adjust its financial statements to reflect the impact of adjusting events and disclose the nature of the event and its financial effect on the financial statements.
Non-adjusting Events: An entity must disclose material non-adjusting events, describing the nature of the event and an estimate of its financial effect (or a statement that such an estimate cannot be made).
Date of Authorization for Issue: An entity must disclose the date when the financial statements were authorized for issue and who gave that authorization.
Updating Disclosures: If an entity obtains new information after the reporting period about the conditions that existed as of the reporting date, it should update the disclosures related to those conditions in light of the new information.

Examples of Applying IAS 10 Standard:

Example 1: Adjusting Event
- Scenario: On December 31, 2023, Company “A” prepared its financial statements, which showed a balance for trade receivables of 100,000 Riyals. On February 15, 2024, before the financial statements were authorized for issue, one of the customers declared bankruptcy. The customer’s balance was 20,000 Riyals on December 31, 2023.
- Analysis: The customer’s bankruptcy is an adjusting event because it provides additional evidence of conditions that existed at the balance sheet date (i.e., the customer was experiencing financial difficulties at that date).
- Treatment: Company “A” must adjust its 2023 financial statements by recognizing an expected credit loss of 20,000 Riyals and reducing the trade receivables balance by the same amount.
Example 2: Non-adjusting Event
- Scenario: On December 31, 2023, Company “B” prepared its financial statements. On January 10, 2024, a fire broke out in one of the company’s factories, resulting in significant losses.
- Analysis: The fire is a non-adjusting event because it indicates conditions that arose after the balance sheet date.
- Treatment: Company “B” does not adjust its 2023 financial statements, but it must disclose the nature of the fire and an estimate of its financial effect (or a statement that such an estimate cannot be made) in the notes to the financial statements.
Example 3: Dividends
- Scenario: On December 31, 2023, Company “C” prepared its financial statements. On February 20, 2024, the company declared dividends to shareholders.
- Analysis: The declaration of dividends is a non-adjusting event.
- Treatment: Company “C” does not adjust its 2023 financial statements, but it must disclose the declared dividends in the notes to the financial statements.

Importance of IAS 10 Standard for Companies:

IAS 10 Standard is one of the important IFRSs that helps companies to:

Comply with IFRS: IAS 10 Standard ensures that companies account for events after the reporting period consistently with International Financial Reporting Standards.
Improve the Quality of Financial Reporting: Applying IAS 10 Standard leads to improved quality, relevance, and reliability of the financial information provided to users of the financial statements.
Enhance Investor Confidence: IAS 10 Standard helps build investor confidence by providing more accurate and transparent information about events after the reporting period.
Avoid Legal Liability: Compliance with the requirements of IAS 10 Standard helps avoid any legal liability related to non-disclosure of material information.

Challenges in Applying IAS 10 Standard:

Determining Whether an Event is Adjusting or Non-adjusting: In some cases, it may be difficult to distinguish between adjusting and non-adjusting events, especially when available information is insufficient.
Estimating the Financial Effect of Non-adjusting Events: It may be difficult to accurately estimate the financial effect of non-adjusting events.
Determining the Date of Authorization for Issue: It may be difficult to accurately determine the date of authorization for issue of the financial statements, especially in large companies with complex administrative structures.
Gathering the Necessary Information: It may be difficult to gather the necessary information about events after the reporting period, especially if these events are outside the entity’s control.

Role of Technology in Applying IAS 10 Standard:

Accounting software and Enterprise Resource Planning (ERP) systems help in applying IAS 10 Standard more efficiently and accurately through:

Tracking significant events that occur after the balance sheet date.
Facilitating the process of assessing whether an event is adjusting or non-adjusting.
Automating the process of adjusting financial statements for adjusting events.
Generating the reports necessary to comply with disclosure requirements.

Impact of IAS 10 Standard on Users of Financial Statements:

IAS 10 Standard provides valuable information to users of financial statements, such as investors and analysts, as it helps them to:

Understand the impact of significant events that occurred after the balance sheet date on the entity’s financial position and financial performance.
Assess the Quality of Reported Earnings: Users of the financial statements can assess whether reported earnings fairly reflect the financial performance of the entity, taking into account the events after the reporting period.
Make More Informed Investment and Financing Decisions: The information disclosed under IAS 10 Standard helps investors and creditors make more accurate and objective decisions.

Conclusion

IAS 10 Standard, “Events After the Reporting Period,” is a fundamental tool for ensuring the quality and reliability of financial information, as it specifies how to account for and disclose events that occur after the end of the financial period. Companies must comply with the requirements of this standard to ensure that financial statements fairly and transparently represent the economic reality of the entity.

Understanding IAS 10 Standard is essential for accountants, auditors, investors, and anyone seeking to understand how events after the reporting period affect the assessment of an entity’s performance and financial position. With the increasing complexity of the business environment, IAS 10 Standard becomes increasingly important as a tool to enhance the credibility of financial reporting and support investor confidence in capital markets.