general principle in recognising in an entity’s separate financial statements those
dividends received from subsidiaries, joint ventures or associates when its right to
receive the dividend is established (see Chapter 8 at 2.4.1). [IAS 27.12]. Accordingly, a
shareholder does not recognise such dividend income until the period in which the
dividend is declared.
In addition to the examples of non-adjusting events the standard provides, IFRIC 23
requires entities to apply IAS 10 to determine whether changes in facts and
circumstances or new information after the reporting period gives rise to an adjusting
or non-adjusting event when reassessing a judgement or estimate of an uncertain tax
position. [IFRIC 23.14]. An event would only be considered non-adjusting if the change in
facts and circumstances or new information after the reporting period was indicative of
conditions that arose after the reporting period (see 3.6 below).
2.2
The treatment of adjusting events
2.2.1
Events requiring adjustment to the amounts recognised, or
disclosures, in the financial statements
IAS 10 requires that the amounts recognised in the financial statements be adjusted to
take account of an adjusting event. [IAS 10.8].
The standard also notes that an entity may receive information after the reporting
period about conditions existing at the end of the reporting period relating to
disclosures made in the financial statements but not affecting the amounts recognised
in them. [IAS 10.20]. In such cases, the standard requires the entity to update the
disclosures that relate to those conditions for the new information. [IAS 10.19].
For example, evidence may become available after the reporting period about a
contingent liability that existed at the end of the reporting period. In addition to
considering whether to recognise or change a provision under IAS 37, IAS 10 requires
an entity to update its disclosures about the contingent liability for that evidence.
[IAS 10.20].
2.2.2
Events indicating that the going concern basis is not appropriate
If management determines after the reporting period (but before the financial
statements are authorised for issue) either that it intends to liquidate the entity or to
cease trading, or that it has no realistic alternative but to do so, the financial statements
should not be prepared on the going concern basis. [IAS 10.14].
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. If
the going concern assumption is no longer appropriate, the standard states that the effect
is so pervasive that it results in a fundamental change in the basis of accounting, rather than
an adjustment to the amounts recognised within the original basis of accounting. [IAS 10.15].
2952 Chapter 34
As discussed in Chapter 3 at 4.1.2, IFRS contains no guidance on this ‘fundamental change
in the basis of accounting’. Accordingly, entities will need to consider carefully their
individual circumstances to arrive at an appropriate basis.
The standard also contains a reminder of the specific disclosure requirements under
IAS 1:
(a) when the financial statements are not prepared on a going concern basis, that fact
should be disclosed, together with the basis on which the financial statements have
been prepared and the reason why the entity is not regarded as a going concern;
or
(b) when management is aware of material uncertainties related to events or
conditions that may cast significant doubt upon the entity’s ability to continue as a
going concern, disclosure of those uncertainties should be made. [IAS 10.16.a, IAS 1.25].
While IFRSs are generally written from the perspective that an entity is a going concern,
they are also applicable when another basis of accounting is used to prepare financial
statements. Various IFRSs acknowledge that financial statements may be prepared on
either a going concern basis or an alternative basis of accounting. [IAS 1.25, IAS 10.14,
CF(2010) 4.1, CF 3.9]. Such IFRSs do not specifically exclude the application of IFRS when
an alternative basis of accounting is used. As a result, financial statements prepared on
a ‘non-going concern’ basis of accounting may be described as complying with IFRS as
long as that other basis of preparation is sufficiently described in accordance with
paragraph 25 of IAS 1. This is further discussed in Chapter 3 at 4.1.2.
Regarding the requirement in (b) above, the events or conditions requiring disclosure
may arise after the reporting period. [IAS 10.16(b)].
2.3
The treatment of non-adjusting events
IAS 10 prohibits the adjustment of amounts recognised in financial statements to reflect
non-adjusting events. [IAS 10.10]. It indicates that if non-adjusting events are material,
non-disclosure could influence the economic decisions of users of the financial
statements. Accordingly, an entity should disclose the following for each material
category of non-adjusting event:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate cannot be
made. [IAS 10.21].
To illustrate how these requirements have been applied in practice, two examples of
disclosure for certain types of non-adjusting events are given below.
Possibly the non-adjusting events that appear most regularly in financial statements are
the acquisition/disposal of a non-current asset, such as an investment in a subsidiary or
a business, subsequent to the end of the reporting period. Extract 34.3 contains an
example of the disclosures required for 2.1.3(a) above related to a business combination:
Events after the reporting period 2953
Extract 34.3: Cranswick plc (2016)
Notes to the accounts [extract]
30.
Events after the balance sheet date
On 8 April 2016, the Group acquired 100 per cent of the issued share capital of CCL Holdings Limited and its wholly
owned subsidiary Crown Chicken Limited (‘Crown’) for net cash consideration of £39.3 million. The principal
activities of Crown Chicken Limited are the breeding, rearing and processing of fresh chicken, as well as the milling
of grain for the production of animal feed. The acquisition provides the Group with a fully integrated supply chain
for its growing poultry business.
Fair values of the net assets at the date of acquisition were as follows:
Provisional
fair value
£’000
Net assets acquired:
Property, plant and equipment
17,501
Biological
assets
4,805
Inventories
1,865
Trade and other receivables
9,845
Bank and cash balances
3,946
Trade and other payables
(7,900)
Corporation tax liability
(541)
Deferred tax liability
(1,815)
Finance
lease
obligations
(370)
27,336
Goodwill arising on acquisition
1
5,878
Total consideration
43,214
Satisfied by:
Cash
43,214
Net cash outflow arising on acquisition:
Cash consideration paid
43,214
Cash and cash equivalents acquired
(3,946)
39,268
The fair values on acquisition are provisional due to the timing of the transaction and will be finalised within twelve
months of the acquisition date.
Included in the £15,878,000 of goodwill recognised above, are certain intangible assets that cannot be
individually separated from the acquiree and reliably measured due to their nature. These items include the
expected value of synergies and an assembled workforce and the strategic benefits of vertical integration
including security of supply.
Transaction costs in relation to the acquisition are expected to total £0.4 million, expensed within administrative expenses.
All of the trade receivables acquired are expected to be collected in full.
2954 Chapter 34
Extract 34.4 contains an example of the disclosure of major ordinary share transactions
after the reporting period as described at 2.1.3(f) above:
Extract 34.4: Ideagen plc (2017)
Note to the Financial Statements for the year ended 30 April 2017 [extract]
27.
Events after the end of the reporting period
Issues of ordinary shares
In order to satisfy the exercise of share options, the company issued 83,333 shares at 35 pence each on 18 May 2017.
The company also issued 550,639 shares at 91 pence on 1 September 2017 into the Group’s Share Incentive Plan.
It is important to note that the list of examples of non-adjusting events in IAS 10, and
summarised at 2.1.3 above, is not an exhaustive one; IAS 10 requires disclosure of any
material non-adjusting event.
2.3.1
Declaration to distribute non-cash assets to owners
When an entity declares a dividend to distribute a non-cash asset to owners after the
end of a reporting period but before the financial statements are authorised for issue,
IFRIC 17 requires an entity to disclose:
(a) the nature of the asset to be distributed;
(b) the carrying amount of the asset to be distributed as of the end of the reporting
period; and
(c) the fair value of the asset to be distributed as of the end of the reporting period, if
it is different from its carrying amount, and the following information about the
method(s) used to measure that fair value: [IFRIC 17.17]
(i) the level of the fair value hierarchy within which the fair value measurement
is categorised (Level 1, 2 or 3); [IFRS 13.93(b)]
(ii) for fair value measurement categorised within Level 2 and Level 3 of the fair
value hierarchy, a description of the valuation technique(s) and the inputs used
in the fair value measurement. If there has been a change in valuation
technique (e.g. changing from a market approach to an income approach or the
use of an additional valuation technique), the entity should disclose that change
and the reason(s) for making it. For fair value measurement categorised within
Level 3 of the fair value hierarchy, quantitative information about the
significant unobservable inputs used in the fair value measurement should be
provided. An entity is not required to create quantitative information to comply
with this disclosure requirement if quantitative unobservable inputs are not
developed by the entity when measuring fair value (e.g. when an entity uses
prices from prior transactions or third-party pricing information without
adjustment). However, when providing this disclosure the quantitative
unobservable inputs that are significant to the fair value measurement and are
reasonably available to the entity should not be ignored; [IFRS 13.93(d)]
(iii) for fair value measurement categorised within Level 3 of the fair value hierarchy,
a description of the valuation processes used by the entity (including, for example,
Events after the reporting period 2955
how an entity decides its valuation policies and procedures and analyses changes
in fair value measurements from period to period); [IFRS 13.93(g)] and
(iv) if the highest and best use of the non-financial asset differs from its current
use, an entity should disclose that fact and why the non-financial asset is
being used in a manner that differs from its highest and best use. [IFRS 13.93(i)].
In the case of (c) above, any quantitative disclosures are required to be presented in a
tabular format, unless another format is more appropriate. [IFRS 13.99]. Fair value
measurement is further discussed in Chapter 14.
2.3.2
Breach of a long-term loan covenant and its subsequent rectification
When an entity breaches a provision of a long-term loan arrangement on or before the
end of the reporting period with the effect that the liability becomes payable on demand,
it classifies the liability as current in its statement of financial position (see Chapter 3
at 3.1.4). [IAS 1.74]. This may also give rise to going concern uncertainties (see 2.2.2 above).
It is not uncommon that such covenant breaches are subsequently rectified;
however, a subsequent rectification is not an adjusting event and therefore does not
change the classification of the liability in the statement of financial position from
current to non-current.
IAS 1 requires disclosure of the following remedial arrangements if such events occur
between the end of the reporting period and the date the financial statements are
authorised for issue:
• refinancing on a long-term basis;
• rectification of a breach of a long-term loan arrangement; and
• the granting by the lender of a period of grace to rectify a breach of a long-term
loan arrangement ending at least twelve months after the reporting period (see
Chapter 3 at 5.5). [IAS 1.76].
2.4
Other disclosure requirements
The disclosures required in respect of non-adjusting events are discussed at 2.3 above. As
IAS 10 only requires consideration to be given to events that occur up to the date when the
financial statements are authorised for issue, it is important for users to know that date, since
the financial statements do not reflect events after that date. [IAS 10.18]. Accordingly, IAS 10
requires disclosure of the date the financial statements were authorised for issue.
Furthermore, it requires: disclosure of who authorised the financial statements for issue and,
if the owners of the entity or others have the power to amend them after issue, disclosure of
that fact. [IAS 10.17]. In practice, this information can be presented in a number of ways:
(a) on the face of a primary statement (for example, entities that are required to have the
statement of financial position signed could include the information at that point);
(b) in the note dealing with other IAS 10 disclosures or another note (such as the
summary of significant accounting policies); or
(c) in a separate statement such as a statement of directors’ responsibilities for the
financial statements (that is, outside of the financial statements as permitted in
certain jurisdictions).
2956 Chapter 34
Strictly speaking
, this information is required to be presented within the financial
statements. So, if (c) above were chosen, either the whole report would need to be part
of the financial statements or the information could be incorporated into them by way
of a cross-reference.
In addition to the IAS 10 disclosure requirements, other standards may require
disclosures to be provided about future events, for example, IAS 8 – Accounting
Policies, Changes in Accounting Estimates and Errors – requires disclosure of the
expected impact of new standards that are issued but are not yet effective at the
reporting date (see Chapter 3 at 5.1.2.C). [IAS 8.30].
3 PRACTICAL
ISSUES
The standard alludes to practical issues such as those discussed below. It states that a
decline in fair value of investments after the reporting period does not normally relate
to conditions at the end of the reporting period and therefore would be a non-adjusting
event (see 2.1.3 above). At the same time, the standard asserts that the bankruptcy of a
customer that occurs after the reporting period would usually be an adjusting event
(see 2.1.2 above). Judgement of the facts and circumstances is required to determine
whether an event that occurs after the reporting period provides evidence about a
condition that existed at the end of the reporting period, or whether the condition arose
subsequent to the reporting period.
In April 2015 the IFRS Transition Resource Group for Impairment of Financial
Instruments (ITG) discussed whether, and if so how, to incorporate events and
forecasts that occur between the reporting date and the date the financial statements
are authorised for issue, when applying the impairment requirements of IFRS 9 at the
reporting date. The ITG noted that if new information becomes available between
the reporting date and the date of signing the financial statements, an entity needs to
apply judgement, based on the specific facts and circumstances, to determine whether
it is an adjusting or non-adjusting event in accordance with IAS 10. This is further
discussed in Chapter 47 at 5.9.4. The case of the insolvency of a debtor is discussed
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 587