AICAS FIRST IFRS WORKSHOP 26 TH JUNE 2010 IAS 10 – EVENTS AFTER THE REPORTING PERIOD

IAS 10 EVENTS AFTER THE REPORTING PERIOD

AICAS FIRST IFRS WORKSHOP26TH JUNE 2010IAS 10 EVENTS AFTER THE REPORTING PERIODCA Rajiv KohliCA Deepti KherorB Com Hons FCA DISA, B Com ACA, AICWA Head Internal Audit, SOX & IFRS Asst. Vice PresidentInmacs Management Services Ltd.

1ContentsIAS 10 Applicable to events after balance sheet date of 2003 and last modified in May 2008 AS 4 (revised 1995)Exposure Draft AS 4 20XXRevised standard expected to be notified around 15th July 2011CA Rajiv Kohli CA Deepti Kheror

MEANING & APPLICABILITY Events after the reporting period are defined as events which occur between the end of reporting date and the date when the financial statements are authorized for issue.These events are significant events both favourable and unfavourable which have occurred during the intervening period between the reporting date and authorization date. IAS 10 prescribes:

Circumstances when an entity should adjust its financial statements for events after the reporting period and Disclosures which an entity has to give about the date of authorization of the financial statements and events after the reporting periodCA Rajiv Kohli CA Deepti Kheror

CLASSIFICATION OF EVENTSEVENTS OCCURING AFTER THE REPORTING PERIODAdjusting EventsNon-Adjusting EventsEvents that provide evidence of conditions existed at the reporting dateEvents that arose subsequent to the reporting dateCA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT Adjusting event is an event

occurring after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriateCA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT TYPES OF ADJUSTING EVENTSFixed Assets: The subsequent determination of the purchase price or of the proceeds of sale of assets purchased or sold before the year-end.Investments: The receipt of a copy of the financial statements or other information in respect of an unlisted company which provides evidence of a diminution other than temporary in the value of a long term investment.Taxation: The receipt of information concerning clarification of tax law

CA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT TYPES OF ADJUSTING EVENTSStocks and Work in Progress: The receipt of proceeds of sales after the balance sheet date or other evidence concerning the net realizable value of stocks.Debtors: The renegotiation of amounts owed by debtors, the insolvency of a debtor or the receipt of cash or other information indicating that the recoverable amount at the balance sheet date is not fairly stated.Claims: Amounts received or receivable in respect of insurance or legal claims which were in course of negotiation at balance sheet dateDiscoveries: The discovery of errors or frauds which show that financial statements were incorrect


NON-ADJUSTING EVENT Non-Adjusting event is an event

after the reporting period that is indicative of a conditions that arose after the end of the reporting periodCA Rajiv Kohli CA Deepti Kheror

TYPES OF NON-ADJUSTING EVENTSMergers, Acquisitions and Business Combinations Reconstructions and proposed reconstructionsAllotment/ buy back of shares and debentures Losses of Fixed Assets or stocks as a result of a catastrophe such as fire or flood or earthquakeClosing significant part of the trading activities if this was not anticipated at the year endChanges in rates of Foreign ExchangeStrikes and other labour disputesChange in tax rate that affect deferred tax asset and liabilityBeginning of a litigation that arises out of events happening after reporting date.

NON-ADJUSTING EVENTCA Rajiv Kohli CA Deepti Kheror

GOING CONCERN ISSUES An entity shall not prepare its financial statements on a going concern basis if the management determines after the reporting date

either that it intends to liquidate the entity or to cease trading or that it has no realistic alternative but to do so

Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate


IAS 10 THROUGH A FEW EXAMPLESEXAMPLES OF ADJUSTING EVENTSExample 1Facts :-Settlement of a court case after the reporting date A client sued the company for damage against the companys failure to fulfil warranty amounting to Rs. 2 Lacs. The company created a provision of Rs. 1 lac based on legal advice. After the end of reporting period but before the date of authorization of financial statements the court decided against the company and a compensation of Rs. 1.5 lac was awarded.


Analysis of Example 1 :-

This issue is covered in IAS 10.9(a). The entity shall adjust the previously recognized provision under IAS 37 or create a new provision.

It has now to provide for addition of Rs. 0.5 lac. The entity does not merely disclose a contingent liability since the settlement provides an additional evidence.CA Rajiv Kohli CA Deepti Kheror

Example 2Facts :-After approval of the accounts by the board of directors, your client a construction company met a rocky surface on a project, against which it expects a non-reimbursable cost of Rs. 80 Lacs. The project is expected to be a loss project and the entire estimated loss other than Rs. 80 lacs has already been provided for. The audit report has not been issued. The amount is material. Advise on the accounting. CA Rajiv Kohli CA Deepti Kheror


The condition of rocky surface existed on the balance sheet date, though it was identified after the balance sheet date. The Board of Directors should revise the financial statements, since the accounts are still not audited.

Had the accounts been audited and approved at the AGM, revision would have not been permissible.


Example 3Facts :-Whether a liability on wage revisions for past periods on which agreement was reached or expected to reach after the balance sheet date to be recognized at the balance sheet date? CA Rajiv Kohli CA Deepti Kheror


The company was aware on the balance sheet date, that the revision of past wages was probable as it had sent proposals in respect thereof although the final amount was subject to approval of the government and settlement with its workers.

Since the condition about the wage revision existed at the balance sheet date the liability arising from wage revision subsequent to the balance sheet date but in respect of past wages should be provided in the accounts based on a best estimate.


EXAMPLES OF NON-ADJUSTING EVENTSExample 1

Cheques received after the balance sheet date but bearing Balance Sheet or Pre Balance Sheet Date:- In accordance with ICAI opinion, published in the ICAI journal of February 2005, cheques received after the balance sheet date, though containing the balance sheet date or pre balance sheet date should not be recognized in the financial statements. This is in accordance with the accounting framework for recognition of assets and liabilities.

IAS 10 THROUGH A FEW EXAMPLESCA Rajiv Kohli CA Deepti Kheror

COMPARISON OF ADJUSTING & NON-ADJUSTING EVENTParticularsCASE ICASE IIFacts of the ExampleDue to destruction of the factory by fire on 15th March, 1993, X, one of the Companys debtors declared himself insolvent on 15th April, 1993. Advice your client on the treatment for the year ended 31st March, 1993On 15th April, 1993 due to destruction of the factory by fire X, one of the companys debtors, declared himself insolvent. Advice your client in the treatment for the year ended on 31st March, 1993


COMPARISON OF ADJUSTING & NON-ADJUSTING EVENTParticularsAdjusting Event (I)Non-Adjusting Event (II)Analysis of the ExampleSince the fire took place before the year end, the condition of insolvency was existing at the balance sheet date. Thus it is an adjusting event for which a provision of doubtful debt needs to be created at the balance sheet date.

Since the fire took place on 15th April, 1993 as a result of which the debtor became insolvent, it is not a condition at the balance sheet date. Thus, it is non-adjusting event and provision of debtors is not required to be made at the balance sheet date. However, appropriate disclosures are required to be made in the report of the board of directors.


DISCLOSURES UNDER IAS 10 Disclosure of Authorization:

An entity should disclose the date when the financial statements were authorized for issue and who gave that authorization.

If the owners of the entity or others have the power to amend the financial statements after issuance, the fact is disclosed


DISCLOSURES UNDER IAS 10 Updating Disclosures :

An entity shall update disclosure that relate to the conditions that existed at the reporting date in the light of any new information that it receives after the reporting about those conditions.


COMPARISON OF IAS 10 & AS-4Item of DifferenceIAS 10AS 4Adjusting & Non-adjusting eventAmounts recognized in the financial statements should be adjusted for events that provide additional evidence of conditions that existed at the balance sheet date and should not be adjusted for events that provide evidence of conditions that did not exist at the balance sheet date.

Similar to IFRS, Under AS 4, non-adjusting events are required to be disclosed in the report of the approving authority, for example, the board report.Authorization date for issue of Financial StatementsThe date of authorization for issue of financial statements should be specifically mentioned in the financial statements itself as required by IAS 10No such requirementCA Rajiv Kohli CA Deepti Kheror

COMPARISON OF IAS 10 & AS-4Item of DifferenceIAS 10AS 4Proposed DividendIf dividends to holders of equity instruments are proposed or declared after the balance sheet date, an entity should not recognize those dividends as a liability at the balance sheet date. Proposed Dividend is a non-adjusting event.The companies are required to make provision for proposed dividend, even though the same are declared after the balance sheet date.CA Rajiv Kohli CA Deepti Kheror

Comparison of AS 4( Revised 20XX), IAS 10 & IFRIC 17Requirements contained in the AS 4 (Revised 20XX) same as those contained in IAS 10 No difference between the AS 4 (Revised 20XX), IAS 10 and, IFRIC 17


Conflicting issues with Schedule VI

Dividend declared entity after the reporting period, is not recognised as a liability at end of the reporting period under AS 4 (Revised 20XX). Such dividend required to be disclosed in notes to balance sheet, in accordance with AS 1 (Revised 20XX)

In contrast, dividend declared but not paid or proposed dividend both shown as liability in financial statements as per requirements of Schedule VI to the Companies Act, 1956

CA Rajiv Kohli CA Deepti KherorAPPLICATION AT TIME OF IMPLEMENTING IFRS 1At date of transition to IFRS, an entity may need to make estimates under IFRS that were not required at that date under Indian GAAP

To achieve consistency with IAS 10, those estimates under IFRS shall reflect conditions that existed at the date of transition to IFRS

Eg: a constructive obligation that was not recognised under Indian GAAP should be included in opening IFRS Balance Sheet using estimates for expected future cash outflows and discount rates that existed at that time


THANK YOU

www.inmacs.comCA Rajiv KohliHead Internal Audit, Sox and IFRSMob: [email protected], [email protected]

CA Deepti KherorAsst. Vice PresidentMob: [email protected]: Delhi ChandigarhMumbai504, Chiranjiv Tower, 43, Nehru Place, No 1048, Sector 18-C, First Floor 105 Chartered House, 293/297 New Delhi 110 019, Chandigarh 160018, Dr. Cawasji Hormasji Street, Tel : +91 11 2622 6933, 2622 3712, 2622 8410 Tel: 0172-5077789,5077790 Near Marine Lines, Mumbai 400002Tel: 91 22 2201 9601

Chennai Bangalore No. 17, 46th Street, Ashok Nagar 105, A Block, Collasseo Ventures, Chennai- 600 083, S.No.118/119, Behind Indian Oil Petrol Bunk,Tel : +91 44 2489 2279, 2489 1343, Marathahalli, Bangalore -560 037

AICAS FIRST IFRS WORKSHOP 26 TH JUNE 2010 IAS 10 – EVENTS AFTER THE REPORTING PERIOD

Documents

end of reporting date

reporting dateevents

reporting period aicas

applicability events

significant events

financial statements

authorization date

date of authorization