One of the most common questions I receive from practitioners relates to ‘post balance sheet events’, explains Steve Collings.
For firms of practitioners using UK GAAP these are dealt with in FRS 21 Events After the Balance Sheet Date with the international equivalent being IAS 10 Events After the Reporting Period. FRSSE users are directed to section 14.
This article will take a look at some issues relating to post balance sheet events, primarily in the context of FRS 21 and FRSSE, though the principles contained in IAS 10 are essentially the same.
Favourable and unfavourable events
FRS 21 (like all the other standards) contains lots of definitions which need to be understood to ensure correct application. Paragraph 3 to FRS 21 refers to ‘favourable’ and ‘unfavourable’ events. The standard then sub-divides these into two further categories – those of ‘adjusting’ and ‘non-adjusting’ events. It is often the case that confusion occurs in deciphering whether a transaction or event becomes an adjusting or a non-adjusting event.
To quickly recap, an adjusting event is one which, by definition, requires the financial statements to be adjusted prior to the approval of the accounts and subsequent distribution to the shareholders. A non-adjusting event is not adjusted for in the financial statements, but should be disclosed if it is considered a material non-adjusting event.
FRS 21 goes into some element of detail concerning the date on which the accounts are approved and authorised for issue. The standard specifically says that the accounts are authorised for issue on the date of issue – not the date on which the shareholders approve the accounts.