International Accounting Standard 10, known as IAS 10, guides how organizations should treat events that arise after the close of their financial reporting period but before the financial statements are formally approved for release. This time window often reveals additional information that may influence how the financial statements should be presented. IAS 10 was crafted to ensure that financial reports remain accurate, reliable, and relevant even when new developments occur shortly after the end of an accounting period.
The standard aims to establish a clear boundary between events that help clarify conditions that existed at the reporting date and those that reflect circumstances emerging afterward. By doing so, IAS 10 promotes transparency for users of financial statements, helping investors, regulators, and other stakeholders form realistic assessments of an entity’s financial position.
The International Accounting Standards Committee first issued guidance on this subject in 1999 under the title Events After the Balance Sheet Date. When the International Accounting Standards Board re-evaluated and updated many standards in the early 2000s, IAS 10 was revised and eventually retitled Events After the Reporting Period, aligning terminology with IAS 1 and other contemporary standards.
Understanding the Gap Between Reporting and Authorisation
In practice, the preparation of financial statements does not end immediately on the reporting date. Companies typically need days or even weeks to finalize accounts, complete audits, and secure internal approvals. This interval creates a unique challenge: important events may unfold during the gap, potentially affecting the interpretation of results for the just-completed period.
IAS 10 acknowledges this practical reality. It defines the reporting date as the last day of the financial period and the authorization date as the moment when the final statements receive approval for issuance. Any significant event occurring in between must be evaluated carefully to determine whether it alters the picture of the company’s financial health at the reporting date.
This evaluation involves distinguishing whether new information sheds light on conditions already present at the end of the period, or whether it relates purely to developments that arose afterward. The distinction is crucial, as it determines whether the financial statements require adjustments or only disclosure.
Adjusting Events: Insights Into Past Conditions
Adjusting events are those that reveal more about situations that existed on or before the reporting date. These events do not represent new circumstances; instead, they enhance, clarify, or confirm the company’s understanding of conditions that already affected assets, liabilities, income, or expenses at period-end.
For example, a customer who owed money at year-end might file for bankruptcy a few days later. Even though the bankruptcy occurred after the reporting period, it validates that the receivable was already impaired at the reporting date. Under IAS 10, this is an adjusting event because it confirms a condition that existed earlier, requiring the company to update its financial statements to reflect the loss.
Another scenario might involve determining the exact cost of inventory or assets purchased before year-end. If the final invoiced amounts or settlement details become available during the post-reporting period, they provide evidence relating to transactions that occurred before the year closed. In such cases, the entity must adjust carrying amounts to reflect this newly confirmed information.
Such adjustments help ensure that the financial statements portray as accurately as possible the true financial position at the reporting date. Failing to incorporate adjusting events would leave users with a distorted view of past realities.
Non-Adjusting Events: Reflecting New Developments
Not all significant events occurring after the reporting period relate to earlier conditions. Many arise from new developments that had no connection to the situation as it stood at the reporting date. IAS 10 categorizes these as non-adjusting events.
These include decisions, changes, or incidents that represent fresh circumstances. A company might announce intentions to shut down a division, commence a major litigation case, or restructure part of its operations after year-end. Similarly, a sudden decline in the market value of an investment due to a new economic shock occurring after the reporting period represents a change unrelated to past conditions.
In such instances, IAS 10 prohibits adjusting the financial statements to account for these later developments because they did not exist at the reporting date. However, the standard stresses that transparency is still important. If the event is material—meaning it could influence the decisions of investors or other users—the entity must disclose the nature of the event and provide an estimate of its financial implications when possible.
Disclosure ensures stakeholders remain well informed about significant post-reporting events even though they do not alter the reported financial position at period-end. This balanced approach preserves the integrity of historical financial reporting while still addressing the importance of developments that could affect future periods.
Reporting Requirements for Significant Non-Adjusting Events
For material non-adjusting events, IAS 10 requires specific and meaningful disclosure. Companies must describe the event clearly and outline its expected financial effect, unless estimating the impact is impossible. In that case, the entity should explicitly mention that the financial effect cannot be reasonably assessed at the time.
Examples of events that typically require disclosure include major acquisitions or disposals, drastic changes in ownership structure, destruction of facilities due to accidents or natural disasters, initiation of large-scale restructuring programs, or litigation stemming solely from actions occurring after the reporting date. Such events may not alter the conditions at the reporting date, but they could shape stakeholders’ expectations for future performance, funding needs, or strategic direction.
This disclosure requirement strengthens informed decision-making, recognizing that the financial statements alone may not fully reflect the evolving realities of the entity’s circumstances. By keeping users aware of major subsequent events, IAS 10 helps maintain trust in the financial reporting process.
Treatment of Dividends Announced After the Reporting Period
One specific type of post-reporting event addressed by IAS 10 relates to dividends declared after the financial year-end. Even if a company’s management or board intends to distribute profits, no liability exists for dividends until they are formally approved under the entity’s governing laws or internal processes. Therefore, if the declaration occurs after the reporting period, the dividend should not be recognized as a liability at the year-end date.
Instead, companies should disclose such dividends in the notes to the financial statements if they are material. This requirement aligns with the broader principle that only obligations existing at the reporting date qualify for recognition.
Assessing the Going Concern Assumption After the Reporting Period
Going concern is a fundamental principle of financial reporting. It assumes that an entity will continue normal operations into the foreseeable future. IAS 10 provides guidance for situations in which events after the reporting period cast serious doubt on this assumption.
If management decides after year-end to wind down operations, liquidate the entity, or recognizes that continued trading is no longer feasible, this decision is so significant that it affects the entire basis on which the financial statements should be prepared. In such circumstances, the entity can no longer use the going concern approach and must adopt an alternative reporting basis that reflects its imminent cessation.
Unlike other non-adjusting events, a change in going concern status impacts the fundamental preparation of financial statements. The potential inability to continue operations does not simply influence the future—it reshapes the entire financial narrative and therefore must be reflected as a change in accounting basis.
Conclusion: The Role of IAS 10 in Enhancing Financial Reporting Quality
IAS 10 plays a pivotal role in bridging the gap between the reporting period and the date of authorization of financial statements. By clearly defining how adjusting and non-adjusting events should be treated, the standard ensures that financial reports reflect both accurate historical information and transparency regarding significant developments occurring shortly thereafter.
Through its blend of adjustment requirements and disclosure obligations, IAS 10 strengthens stakeholder confidence and supports meaningful financial analysis. The standard reinforces the idea that high-quality reporting must acknowledge the fluid nature of real-world events while still respecting the integrity of the reporting period.
Important Questions And Answers About IAS 10
What is the main goal of IAS 10?
IAS 10 explains how companies should deal with information that comes to light after the reporting period but before the financial statements are officially approved, ensuring reports stay relevant and fair.
Why is the period after year-end important?
Because key events often happen during this gap, and some of them can change the way financial information should be understood.
What are adjusting events under IAS 10?
They are events that provide new evidence about situations that already existed at the reporting date, meaning the financial statements must be updated.
Can you give an example of an adjusting event?
A customer going bankrupt shortly after year-end confirms that the receivable was already doubtful at the reporting date, so the amount should be adjusted.
What are non-adjusting events?
These are events that arise after the reporting period and do not relate to previous conditions, so the statement amounts stay unchanged.
What should companies do with material non-adjusting events?
They must disclose the nature of the event and estimate its financial impact, since it may influence user decisions.
How are dividends treated if declared after year-end?
They are not recorded as a liability at the reporting date, because no obligation existed at that time.
When is disclosure required instead of adjustment?
When an event is significant but relates to new conditions after year-end, disclosure ensures users still receive useful information.
Why does IAS 10 matter to investors?
It helps investors see not only what existed at year-end but also learn about major developments that might affect future performance.
What happens if major events threaten going concern after year-end?
Management must reassess whether the company can continue operating, and if not, a different reporting basis would be required.
Does IAS 10 change figures for future uncertainties?
Only if those uncertainties relate to what was already true at the reporting date; new situations only require disclosure, not adjustment.
How does IAS 10 promote transparency?
By requiring both adjustment and disclosure where necessary, the standard keeps reports reliable while acknowledging real-world events.