Adjusting and non-adjusting events

In line with International Accounting Standard (IAS) 10- Events after reporting date, an entity should adjust its Financial statements for events that occurred after its reporting date.

 

This means that events may occur after the reporting date of an entity but before the financial statement are authorized for issue by the shareholders. Hence, events occurring between reporting date and authorization date should be adjusted for.

 

What is reporting date?

In simple terms, reporting date is the last day of recording and reporting financial statements. Entities are at liberty to choose any reporting date; hence different entity possess different reporting date.

 

What is authorization date?

This is the date/ day at which financial statements are approved by a group of individuals with the authority to do so.

 

Two types of events may occur between the reporting date and the authorization date. They are: Adjusting events and non-adjusting events.

 

Adjusting events are events that occurs between the reporting and authorization date, that provide evidence of condition that existed at the end of the period. These events may be favorable or unfavorable and they are to be adjusted for. Examples of adjusting events includes:

·      Fraud and errors identified after the reporting date

·      Settlement of litigation after the reporting date as a result of an event during the reporting period

·      Under/over valuation of inventory

 

Non-adjusting events are events that occur between the reporting and authorization date, that are indicative of a condition that arose after the reporting period. Examples of non-adjusting events includes:

·      Dividend declared after the reporting date

·      Business acquisition after the reporting date

·      Acquisition or disposal of assets after the reporting date