Subsequent Events Flashcards
(11 cards)
What are the two questions we should ask ourselves once we see a “subsequent event”?
- When should we adjust the FS?
- And, what should we disclose?
What are the two types of subsequent events?
- Adjusting events (type 1)
- Non-adjusting events (type 2)
What is an adjusting event?
An event where further evidence suggests that conditions existed at reporting date.
What is a non-adjusting event?
An event where further evidence suggests that conditions arose subsequent to the reporting period.
What does it mean when it says FS are authorized for issue?
Date on which BOD approves the financial statements.
What are some examples of adjusting entries?
- Court cases related to an event that occurred prior to year-end is settled.
- Information arises indicating that an asset was impaired.
- Customer bankruptcy after reporting date confirms a loss existed at FS date.
- Sale of inventories gives evidence on net realizable value being lower than carrying value.
- Fraud or errors discovered that show the FS are incorrect.
6: Events that indicate that the going concern assumption is not appropriate.
What are some examples of non-adjusting events?
- Major business combinations or disposal of subsidiary.
- Dividends declared after the reporting period.
- Destruction of major production plant by fire/flood after the reporting date.
- Announcing a major restructuring or discontinued operations.
- Major ordinary share transaction.
- Changes in tax rates or tax laws enacted or announced.
- Abnormally large changes in assets prices or fx rates after reporting period.
If it is a non-adjusting event, what is the next step?
First step is to prove and use case facts that the conditions are the event arose subsequent to the reporting period. This results in no adjustment to the FS having to be made.
Then, a disclosure must be made, specifically around the:
1. Nature of the event
2. Estimate of its financial effect.
If it is an adjusting event, what is the next step?
Use case facts/evidence to prove that these ‘conditions’ existed at year-end. From there, adjust the FS to reflect the effect of the event.
A disclosure around the nature may be needed if the event is material or FS users need it for understanding.
It seems like subsequent events under ASPE and IFRS are treated the same. What are the differences?
The main difference seems to be around going concern assumptions. Under IAS 10, you are explicitly required to assess and disclose whether the going concern is appropriate. In comparison, not as focused on going concern assumption as these issues are disclosed under Section 1400.
What is the handbook section for ASPE and IFRS for Sub Events?
ASPE 3820
IAS 10
