Events may occur between the end of the reporting period and the date when financial statements are authorized for an issue that may present information that should be considered in the preparation of financial statements.
IAS 10 Events after the Reporting Period guides as to which events should lead to adjustments in the financial statements and which events shall be disclosed in the notes to financial statements.
Events after the balance sheet date are the events, which could be favorable or unfavorable, that occur between the end of the reporting period and the date that the financial statements are authorized for issue.
Types of Events after the Reporting Period
Events after the end of reporting period may be classified into two types:
- Adjusting Events.
- Non-Adjusting Events.
1. Adjusting Events
Adjusting events are those events that provide further evidence about conditions that existed at the end of the reporting period.
If any events occur after the end of the reporting period that provides further evidence of conditions that existed at the end of the reporting period (i.e., Adjusting Events), then the financial statements must be adjusted accordingly.
Examples of adjusting events include:
- The settlement of litigation against the entity after the reporting date, in respect of events that occurred before the end of the reporting period, may provide evidence of the existence and amount of liability at the reporting date. Liability in respect of the litigation may be recorded in the financial statements if not recognized initially, or the amount of liability may be adjusted under IAS 37 Provisions, Contingent Liabilities, and Contingent Assets.
- Declaration of bankruptcy by a long outstanding receivable after the reporting date may provide evidence that the receivable was impaired at the reporting date. Impairment may be recognized in the financial statements by reducing the amount of receivable to its recoverable amount if any.
- Detection of fraud or errors after the reporting period may indicate that the financial statements are misstated. Financial statements may be adjusted to reflect accounting for those errors or frauds that relate to the present or prior reporting periods under IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.
2. Non-Adjusting Events
Non-adjusting events are those events that reflect conditions that arose after the end of the reporting period.
An entity shall not adjust the financial statements in respect of those events after the end of the reporting period that reflects conditions that arose after the end of the reporting period (i.e., Non-Adjusting Events).
Examples of non-adjusting events include:
- Declaration of dividends after the reporting date does not indicate the existence of liability to pay dividends at the reporting date. It shall not, therefore, trigger the recognition of liability in financial statements under IAS 37 Provisions, Contingent Liabilities, and Contingent Assets.
- Destruction of assets of the entity by floods occurring after the reporting period does not indicate that the assets of the entity were impaired at the end of the reporting period. Hence, the financial statements should not be adjusted to account for the impairment loss that arose after the end of the reporting period.
- Initiation of litigation against the company arising out of events that occurred after the reporting period does not indicate the existence of liability at the reporting date. It shall not, therefore, trigger the recognition of liability in the financial statements under IAS 37 Provisions, Contingent Liabilities, and Contingent Assets.
Post Audit Responsibilities
Post audit responsibilities include the consideration of the following:
- Subsequent events are occurring between the date and the issuance of the auditor’s report.
- The discovery of existing facts.
- The discovery of omitted procedures.
1. Subsequent Events between Date and Issuance of Report
Dating of the independent auditor’s report states that the auditor has no responsibility to make any inquiries or to perform any auditing procedures during this period to discover any subsequent material events.
Alternatively, the auditor may use dual dating in the audit report. Under this course of action, the original date is retained except for the dating of the subsequent event.
Dual dating is the most common practice because redacting of the entire report extends the auditors’ overall responsibility beyond completion of failed work under redacting the auditor should extend the subsequent events review procedures to the letter date.
2. Discovery of the Facts Existing at Report Date
The auditor has no responsibility for the post-audit of facts existing at the date of the audit report. The subsequent discovery of facts existing at the date of the auditor’s report indicates that;
- The auditor becomes aware of such facts, and
- the facts may have affected the report that was issued; the auditor is required to ascertain the reliability of the information.
3. Discovery of Omitted Procedure
After the date of the audit report, the auditor may conclude that one or more auditing procedures considered necessary in the circumstances were omitted from the audit.
Auditor standard does not require the auditor to conduct any post-audit review from a post-engagement review performed during a firm’s quality control inspection program or during an outside peer review.