Even though the standard’s name starts with Contingencies, all the paragraphs related to Contingencies have been withdrawn by ICAI. Contingencies are dealt by AS 29 – Provisions, Contingent Liabilities and Contingent Assets. After the financial Year End, Board of Directors/Management prepares the financial statements and approves the same. Auditor of the company conducts audit and issues a report on the financial statements. Audited financial statements are adopted by the Members of the company in the AGM.
Events occurring after the balance sheet date are significant events which occur between the balance sheet date and financial statements approval date. These significant events can be favorable or unfavorable to the entity. Significant events are Material events which can influence the economic decisions of the users of financial statements. Events occurring after the balance sheet date are classified into two as Adjusting events and Non-Adjusting Events. The primary objective of the standard is to ensure the completeness that the transactions and related information are updated in financial statements. Important Points for Adjusting Events:
Conditions must be existing on the Balance Sheet date.
The entity does not have the complete or correct information about the items on the balance sheet date. If such information was available, the entity could have adjusted accordingly on the balance sheet date only.
Events occurring after the balance sheet date are confirming or giving more information about the conditions which were existing on the Balance Sheet Date.
If the Subsequent event is an adjusting event the entity should record the transaction as on balance sheet date. Entity should consider all such adjusting events till the date of approval of financial statements by the approving authority.
Important Points for Non- Adjusting Events:
No condition exists on the Balance Sheet date.
Subsequent event does not affect the balances as on balance sheet date. So no need to account for as on balance sheet date.
Non adjusting events should not be disclosed in financial statements.
If non adjusting events are significant approving authority can disclose the same in their report, so as to enable the users of financial statements to make proper evaluations and decisions.
If the approving authority wants to disclose no adjusting events in their report, they should disclose the following information:
Nature of the Events.
Estimation of the financial effect.
If it is not possible to estimate, disclose the fact that such estimation cannot be made.
Exceptions:
Even though it is a non adjusting event it should be adjusted as on balance sheet date. There are two exceptions to the rule of adjusting events:
If it is a statutory requirement or it is of special nature.
If events occurring after the balance sheet date affects the Going Concern Assumption of the entity.
AS 4 – Contingencies and Events Occurring After the Balance Sheet date vs. Ind AS 10 – Events After the Reporting Period vs. IAS 10 Events After the Reporting Period:
As per AS 4 requirements, the dividend declared or proposed after the balance sheet date but before the approval date of financial statements must be recorded as a provision. But as per Ind AS 10 and IAS 10 liability for dividends declared to equity shareholders are recognized in the period when declared.
Under IAS 10 when an entity breaches a provision of long term loan arrangement on or before the end of the reporting period with the effect that liability becomes payable on demand, an agreement by the lender for issue not to demand payments after the balance sheet date but before approval is considered as non-adjusting event and as per Ind AS 10 it is an adjusting event but there is no specific guidance on this in the AS 4.
Update in Ind AS 10: In the amendment, any non- adjusting events that could reasonably be expected to influence decisions of the primary users of general purpose financial statements, make on the basis of those financial statements which provide financial information about a specific reporting entity have been added. Accordingly, the following disclosure to be provided
The nature of the event; and
An estimate of its financial effect or a statement that such an estimate cannot be made.
Definition for non–adjusting events and its effective date of application have been changed with reference to IFRS.
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