Post-Balance-Sheet Events

Post-Balance-Sheet Events Adjusting Events Non-Adjusting Events Financial Reporting Accounting Standards Financial Statements Subsequent Events
Post-balance-sheet events, also known as subsequent events, are events or transactions that occur after the balance sheet date but before the financial statements are issued or available to be issued. These events sometimes impact the financial reporting and disclosures of the entity.
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Definition

Post-balance-sheet events, also known as subsequent events, refer to events or transactions that occur after the balance sheet date but before the financial statements are issued or available to be issued. These events may necessitate adjusting the financial statements and disclosures to provide accurate and complete information to financial statement users.

Types of Post-Balance-Sheet Events

  • Adjusting Events: Events that provide additional evidence of conditions that existed at the balance sheet date. These events typically require adjustments to the amounts recognized in the financial statements.
  • Non-Adjusting Events: Events that are indicative of conditions that arose after the balance sheet date. These events do not necessitate adjustments but may require disclosure in the notes to the financial statements.

Examples

  1. Adjusting Event: A company determines after the balance sheet date that an asset was impaired at the balance sheet date due to conditions existing at that point, such as discovering a major fraud scheme involving significant parts of the company’s assets.
  2. Non-Adjusting Event: A company declares dividends after the balance sheet date. Since the decision occurred after the balance sheet date, it does not impact the financial statements for the period ending on that date but might need disclosure in the notes.

Frequently Asked Questions (FAQs)

What are post-balance-sheet events?

Post-balance-sheet events refer to transactions or events that happen after the balance sheet date but before the financial statements are issued. These events can affect the information included in the financial statements and may necessitate adjustments or additional disclosures.

What is the difference between adjusting and non-adjusting events?

  • Adjusting events provide evidence of conditions that existed at the balance sheet date. These require adjustments to the financial statements.
  • Non-Adjusting events are indicative of conditions that arose after the balance sheet date. These do not require adjustments to the financial statements but may require disclosures.

How are post-balance-sheet events identified?

Post-balance-sheet events are identified by reviewing transactions and events occurring after the balance sheet date up until the date the financial statements are issued or are available to be issued.

Why are post-balance-sheet events important?

They ensure the financial statements reflect all significant conditions and events affecting the entity’s financial position and results of operations, providing a true and fair view to the users of the financial statements.

  • Adjusting Events: Events occurring after the balance sheet date that provide additional evidence of conditions that existed at the balance sheet date.

  • Non-Adjusting Events: Events that are indicative of conditions that arose after the balance sheet date and do not require adjustments but may require disclosure.

Online Resources

  1. IFRS - International Accounting Standards 10 (Events after the Reporting Period)
  2. FASB - Financial Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 855: Subsequent Events

Suggested Books for Further Studies

  1. “International Financial Statement Analysis” by Thomas R. Robinson, Hennie van Greuning, Elaine Henry, and Michael A. Broihahn.
  2. “Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso.

Accounting Basics: “Post-Balance-Sheet Events” Fundamentals Quiz

### What are post-balance-sheet events also known as? - [ ] Prior period events - [x] Subsequent events - [ ] Pre-balance-sheet events - [ ] Adjacent events > **Explanation:** Post-balance-sheet events are also known as subsequent events, occurring after the balance sheet date but before financial statements are issued. ### What type of post-balance-sheet events provide evidence of conditions at the balance sheet date? - [x] Adjusting events - [ ] Non-Adjusting events - [ ] Future events - [ ] Conditional events > **Explanation:** Adjusting events provide additional evidence about conditions that existed at the balance sheet date and require financial statement adjustments. ### Which type of event typically requires disclosure rather than adjustment in the financial statements? - [ ] Adjusting events - [x] Non-Adjusting events - [ ] Intermediate events - [ ] Critical events > **Explanation:** Non-Adjusting events are indicative of conditions arising after the balance sheet date and usually require disclosure in the financial statements notes. ### How are adjusting events identified? - [x] By reviewing conditions that existed at the balance sheet date - [ ] By only reviewing future forecasts - [ ] By assessing personal assumptions - [ ] By examining unrelated market trends > **Explanation:** Adjusting events are identified by analyzing events and transactions that provide additional evidence about conditions that existed at the balance sheet date. ### What is a typical example of a non-adjusting event? - [x] Declaring dividends after the balance sheet date - [ ] Recording an asset impairment existing at the balance sheet date - [ ] Discovering inventory errors from the last year - [ ] Correcting a misstatement in the financial records > **Explanation:** Declaring dividends after the balance sheet date is a non-adjusting event as it indicates conditions that arose after the balance sheet date. ### Should adjusting events be reflected in the financial statements? - [x] Yes, they should be reflected - [ ] No, they should not be reflected - [ ] Only sometimes - [ ] It depends on management's discretion > **Explanation:** Adjusting events should be reflected in the financial statements as they provide additional evidence of conditions that existed at the balance sheet date. ### Why might a post-balance-sheet event require disclosure? - [ ] To obscure the company's financial position - [ ] To confuse stakeholders - [x] To inform users of significant events occurring after the balance sheet date - [ ] To avoid other compliance requirements > **Explanation:** Disclosure of post-balance-sheet events informs users about significant events affecting the company that occurred after the balance sheet date, ensuring transparency and accuracy in reporting. ### Can non-adjusting events affect the financial statements of the following year? - [x] Yes, non-adjusting events can affect the financial statements of the following year - [ ] No, they only affect the current year's statements - [ ] Only in rare circumstances - [ ] Only if the events are optional > **Explanation:** Non-Adjusting events may impact the financial statements of the subsequent year, as they indicate new conditions affecting future operations. ### Which authority provides the guidelines for post-balance-sheet events? - [ ] Local chambers of commerce - [ ] Individual accountants - [x] International Accounting Standards Board (IASB) - [ ] Financial advisors > **Explanation:** The International Accounting Standards Board (IASB) provides guidelines for recognizing and reporting post-balance-sheet events through standards like IAS 10. ### For what purpose should post-balance-sheet events be disclosed? - [ ] To provide additional revenue - [ ] To hide losses - [ ] To ensure fair presentation and compliance - [x] To ensure fair presentation and compliance > **Explanation:** Disclosure of post-balance-sheet events is crucial to ensure fair presentation and compliance with accounting standards and to provide users with a clear understanding of significant subsequent events.

Thank you for exploring the intricacies of post-balance-sheet events. Keep enhancing your understanding of accounting principles!

Tuesday, August 6, 2024
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