Which of the following events after reporting period would require disclosure

Adjusting event is the event that arose after the end of the reporting period, but provides further evidence of conditions that existed at the end of the reporting period.

Accounting treatment: financial statements should be adjusted for adjusting events.

Going concern: If a management indicates after the end of the reporting period that it intends to liquidate the business or cease trading or there is no other realistic alternative, then the financial statements should NOT be prepared under going concern basis.
 

Non-adjusting event

Non-adjusting event is an event after the reporting period that indicates conditions arising after the end of the reporting period.

Accounting treatment: do not adjust financial statements for non-adjusting events. The following disclosure shall be made:

• The nature of the event, and
• An estimate of its financial effect or a statement that such an estimate cannot be made.

Accounting for dividends: If an entity declares dividends to shareholders after the end of the reporting period, the entity shall not account for those dividends as for a liability at the reporting date.

If dividends are declared after the end of the Reporting Period, but before the financial statements are approved for issue, the dividends are disclosed in the notes to the financial statements.

Articles about IAS 10

• Summary of IAS 10 Events After the Reporting Period
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Examples related to IAS 10

Lawsuit

ABC has been sued for the damages caused, but just before the year-end the lawyers believe that the change of losing the case is remote and thus no provision has been created.

On 15 February, the court approved CU 1 mil. damages agains ABC. How should this event be recognized in the financial statements?

Solution:

It depends on the date when the financial statements have been approved and authorized for an issue.

If it is after 15 February, then the event is adjusting, because the new information indicated that ABC was liable for the damages caused prior the end of the reporting period.

The journal entry is:

• Debit P/L – Legal expenses for damages: CU 1 mil.
• Credit Provision: CU 1 mil.

If the financial statements were authorized for an issue before 15 February, then by definition it is NOT the event after the reporting period and it out of scope of IAS 10.
 

Bad debts

DEF has a receivable towards major client amounting to CU 500 as at 31 December 20X1.

On 10 January 20X2 there is a big fire in the client’s premises and as a result, the client is not able to pay the full amount to DEF and DEF will suffer a loss of 50%.

How shall this transaction be reported in the financial statements?

Solution:

This is a non-adjusting event, because the credit loss arose as a result of fire occurring after the end of the reporting period. DEF needs to make appropriate disclosures in its financial statements.
 

Dividends

KLM has prepared its financial statements for the year ended 31 December 20X1.

On 30 January 20X2, KLM’s directors declare dividends amounting to CU 2 million.

How shall this transaction be reported in the financial statements for the year ended 31 December 20X1?

Solution:

This is a non-adjusting event. KLM does not change the figures in its financial statements for the year 20X1, but discloses the post-reporting-period dividends in the note on retained earnings.
 

Going concern

XYZ has a trade debtor that owes CU 50 million on 31 December 20X1.

On 21 January 20X2, the debtor goes into liquidation. XYZ is informed that it will receive nothing from the liquidation.

XYZ is unable to raise funds to recover from this loss, and is certain to be liquidated.

How shall this situation be reflected in the financial statements for the year ended 31 December 20X1?

Solution

The financial statements to 31 December 20X1 should be produced on a liquidation basis, not a going-concern basis.

Key statements of financial position sheet items and related disclosures that have been impacted by COVID-19 were as follows:

Trading assets, trading liabilities and financial investments
Given recent market volatility, the Consolidated Entity reviewed the appropriateness of the inputs to its valuations, which included the use of correlations, price volatilities, funding costs and bid offer, counterparty and own credit spreads. The impact of changes in valuation inputs has also been considered in terms of the classification of exposures in the fair value hierarchy, transfers within the fair value hierarchy and the Level 3 sensitivity analysis. The Consolidated Entity’s financial investments include a portfolio of unlisted equity investments which, in accordance with the Consolidated Entity’s accounting policies, are measured at FVTPL. The determination of the investments’ carrying value included a consideration
of the impact of COVID-19.

Derivative assets and liabilities
Given recent market volatility, the Consolidated Entity reviewed the appropriateness of the inputs to its valuations. These included valuation adjustments (XVA) and notably the credit valuation adjustment (CVA), debit valuation adjustment (DVA) and funding valuation adjustment (FVA). The impact of changes of inputs to the valuations has also been considered in terms of the classification of exposures in the fair value hierarchy and transfers within the fair value hierarchy.

Held for sale assets and liabilities
Held for sale assets and liabilities includes certain disposal groups and investments in associates and joint ventures for which the conditions precedent relating to the disposal were met subsequent to 31 March 2020. For these and other items that are classified as held for sale, the appropriateness of the held for sale classification at the reporting date was reassessed and affirmed. Further, the impact of COVID-19 on the carrying value of the assets and liabilities that were classified as held for sale was assessed. Refer to Note 102 and Note 21.2

Loan assets, due from subsidiaries and other assets
In response to COVID-19 the Consolidated Entity and the Company undertook a review of wholesale and retail credit portfolios, loans to its subsidiaries and other financial asset exposures, as applicable, and the ECL for each. The review considered the macroeconomic outlook, customer credit quality, the type of collateral held, exposure at default, and the effect of payment deferral options as at the reporting date. The ECL methodology, SICR thresholds, and definition of default remained consistent with prior periods. The model inputs, including forward-looking information, scenarios and associated weightings, together with the determination of the staging of exposures were however revised. The impact of COVID-19 on the credit risk management disclosures, notably in relation to credit quality and collateral and other credit enhancements was also considered. Refer to Note 122 and Note 34.2

Property, plant and equipment and right-of-use assets
Included in the group’s property, plant and equipment and right-of-use assets at 31 March 2020 is a portfolio of rotorcraft assets. Given the impact of COVID-19, the portfolio was subject to impairment testing which concluded that no material impairment was required. Refer to Note 13.2

Interest in associates and joint ventures, investments in subsidiaries and interests in unconsolidated structured entities
The Consolidated Entity’s investments in associates and joint ventures is diversified, has been acquired over time and covers various sectors (including infrastructure and green energy) and geographic locations. When it has been assessed that there is an indicator of impairment the Consolidated Entity tests the carrying amount of each of its investments for impairment, by comparing the investment’s recoverable amount with its carrying value. Disclosures with respect to the Consolidated Entity’s equity accounted interests in Macquarie AirFinance Limited, East Anglia ONE Limited and Macquarie Infrastructure Corporation (MIC) have been provided. In addition to the Company assessing its investments in subsidiaries for impairment, the Company and Consolidated Entity re-affirmed that there were no circumstances as a result of COVID-19 that would affect the existing control conclusion for its subsidiaries, including structured entities, nor did it highlight instances in which the Company or Consolidated Entity now had control of such entities. Refer to Note 14 and Note 16 (Not reproduced).

Intangible assets
Consistent with the Consolidated Entity’s accounting policies, the Consolidated Entity has tested goodwill and indefinite life intangible assets for impairment and has reviewed the carrying value of its finite life intangible assets at the reporting date for indicators of impairment and, where applicable, reviewed the measurement of the carrying value of such intangible assets. Such assessment incorporated a consideration of COVID-19. Refer to Note 15.3.

Debt issued and loan capital
Debt-related covenants were assessed to determine whether there were any breaches for which disclosure is required. The Consolidated Entity identified no such breaches at 31 March 2020 nor at the time at which these financial statements were authorised for issue. Refer to Note 223 and Note 24.3.

Hedge accounting
An assessment was conducted as to the impact of COVID-19 with respect to whether the hedged forecasted cash flows in cash flow hedge relationships remain highly probable at the balance date. Based on available facts as at 31 March 2020, including announcements from governments and regulators, as well as discussions with our clients, the modelling of the hedged future cash flows were determined to remain highly probable and hence hedge accounting has continued to be applied.

Risk management
The Consolidated Entity’s robust risk management framework continues to be applied across the Operating and Central service groups and RMG continues to monitor the impact of COVID-19 on the Consolidated Entity’s risk profile. Non-financial risks emerging from global movement restrictions, and remote working by our staff, counterparties, clients and suppliers, are being identified, assessed, managed and governed through timely application of the Consolidated Entity’s risk management framework.

Which of the following events after the reporting period would require disclosure?

What subsequent events require disclosure?

What event comes after the reporting period?

Which event after the reporting period would require disclosure in the financial statements quizlet?