FRS110

FRS110 - Events After Balance
Sheet Dates
Introduction:
• The information provided in financial statements
should reflect effects of transactions and events
that have occurred during the accounting period
and ALSO other material transactions and events
that have occurred after the financial year-end
but before the accounts are authorized for issue,
which may affect the performance and position of
the enterprise.
Definitions:
• FRS 110
• those events, favorable and unfavorable, that
•
occur between the balance sheet date and the
date when the financial statements are
authorized for issue.
Two types of events can be identified:
– those that provide evidence of conditions that
existed at the balance sheet date (adjusting
events after the balance sheet date); and
– those that are indicative of conditions that
arose after the balance sheet date (nonadjusting events after the balance sheet
date).
What’s the meaning of after the
balance sheet date?
B/S date
(31st Dec)
FS authorised
Issue FS
for issue – which date??
• FS
1) preliminary – income statements, balance
sheet
2) unaudited FS – within 4 months after B/S
date
3) audited FS – within 6 months after B/S date
Examples:
• The management of an entity completes draft financial
statements for the year to 31 December 20X1 on 28
February 20X2. On 18 March 20X2, the board of directors
reviews the financial statements and authorizes them for
issue. The entity announces its profit and selected other
financial information on 19 March 20X2. The financial
statements are made available to shareholders and others
on 1 April 20X2. The shareholders approve the financial
statements at their annual meeting on 15 May 20X2 and
the approved financial statements are then filed with a
regulatory body on 17 May 20X2.
• The financial statements are authorized for issue on 18
March 20X2 (date of board authorization for issue).
• Refer example 2
Events associated with EABSD
• adjusting events after the balance
sheet date
• non-adjusting events after the
balance sheet date
FRS 110: Further explanations
The Balance Sheet
date
Fin. State
For the period
Those that provide
Further evidence
Adjusting Events
Between
Favourable and unfavourable
Those that are
Indicative of condition
Non -Adjusting
Events
Date of fin. State
Authorised for issue
Future Events
Special Issue
Dividend
Going
Concern
Recognition and Measurement
• Adjusting Events after the balance sheet dates
– adjust the amounts recognized in its financial
statements to reflect adjusting events after the
balance sheet date.
• Non Adjusting Events after the balance sheet
dates
– not adjust the amounts recognized in its
financial statements to reflect non-adjusting
events after the balance sheet date.
Adjusting Events
•
•
•
•
•
•
•
•
Measurement of bad and doubtful debts
Determining the NRV of inventory
Court case
Impairment of assets
Acquisitions or disposal of assets
Profit sharing or bonus (constructive obligation)
Fraud
Refer example 3
Adjusting Events
• Eg: Resolution of a court case
31st Dec
resolution authorised FS
disclose
recognised
contingent
provision
liability (if the amt cannot be estimated)
Non – Adjusting Events
• Examples:
• major business combination, restructuring,
•
•
•
•
change in tax rate/law, abnormally changes in
foreign exchange rates
Announcing a plan to discontinue an operation
Major purchase of assets or expropriation of
major assets by government
The destruction of major production plan by fire
Refer example 4
– no adjustment but disclosure :
– (a) the nature of the event
– (b) the estimate of the financial effect , if any
Special issue :Dividend
• proposed and declared dividends AFTER
b/s date should NOT be recognised as
liability in balance sheet.
• FRS 101 allowed the dividends to be
disclosed:
– on the face of balance sheet as a separate
component of equity
– in the notes to FS
Special issue :Going concern
• Management intends to liquidate the entity
or cease trading, GC assumption may no
longer appropriate.
• FRS 101 requires to changes its basic of
accounting and disclosed in the notes to FS.
• Assets may measure at FV less cost to sell
Additional Disclosure:
• date of authorisation
• updating disclosure on conditions after the b/s
•
date
for non-adjusting events : ONLY IF nondisclosure will affect ability of user to make
proper evaluation and decision, an entity
should disclose any significant category of non
– adjusting events:
– Nature of events
– Estimates of the financial effects or a statement that
such an estimate cannot be made