Question

IAS 10: Events after the Reporting Period addresses two issues: adjusting events, namely, those events that provide evidence of conditions that existed at the end of the reporting period and non-adjusting events: which are those events that are indicative of conditions that arose after the reporting period that need to be reflected in the financial statements. Amounts recognized in the financial statements are adjusted to reflect adjusting events, but only disclosures are required for material non-adjusting events. Management’s judgment is required in determining whether events that took place after the end of the reporting period are adjusting or nonadjusting events. This will be highly dependent on the reporting date and the specific facts and circumstances of each company’s operations. Coronavirus has overwhelmed the world in various ways and at various times. China was the first to announce spread of the virus in November, 2019. UK announced its first case of coronavirus in February, 2020 and Ghana announced its first case in March, 2020. While company A resides in China, company B resides in the UK and C resides in Ghana. Company A’s financial reporting period ends on 31st October each year; company B’s financial reporting period ends on 31st December, each year and company C’s financial reporting period ends on the 31st of March each year. Management of these companies may need to continually review and update the assessments up to the date the financial statements are issued given the fluid nature of the crisis and the uncertainties involved.

Answer 1

ANSWER :

Summarized the information provided in the given question; i.e.., IAS 10: Events after the Reporting Period addresses two issues: adjusting events, namely, those events that provide evidence----

Discussing in respect of each of the companies, the potential management conclusions of the impact of the Coronavirus on end of year reporting, mindful of IAS 10 :

COVID-19 will be a factor in an entity’s analysis of estimates made in the preparation of the financial statements, including those related to the expected credit loss on receivables, inventory obsolescence, impairment analyses, variable and contingent consideration estimates, and other factors. Whilst the events stemming from COVID-19 are extremely volatile, entities will nevertheless be required to consider conditions as they existed at the reporting date when evaluating subsequent events.

Given the economic environment and the likelihood that events may occur rapidly or unexpectedly, entities should carefully evaluate information that becomes available after the end of the reporting period but before the date of authorization of the financial statements. The amounts in the financial statements must be adjusted to reflect events after the end of the reporting period that provide evidence of conditions that existed at the end of the reporting period. Events that are indicative of conditions that arose after the reporting period are non-adjusting events. They are not reflected in the recognition or measurement of items in the financial statements, but require disclosure when material.

China- Reporting Date: 31- Oct:

Spread Reported in Nov 19:

• In the case of Company A in China, the spread reported in Nov 19 which is after the reporting date. Since the events that are indicative of the conditions arose after the end of the reporting period, these are to be treated as non-adjusting events. So it is appropriate to consider that the effects on the company are the result of events that arose after the reporting date that may require disclosure in the financial statements but would not affect the amounts recognized.
• If non‑adjusting events are material, an entity is required to disclose the nature of the event and an estimate of its financial effect. The estimate does not need to be precise. It is preferable to provide a range of estimated effects as an indication of impact to not providing any quantitative information at all. However, where quantitative effect cannot be reasonably estimated, qualitative description should be provided, along with a statement that it is not possible to estimate the effect.

UK- Reporting Date: 31-Dec:

Spread Reported in Feb 2020:

• In the case of Company B in UK also, the spread reported after the reporting date. Since the events that are indicative of the conditions arose after the end of the reporting period, any material events are to be treated as non-adjusting events, which may require disclosure in the financial statements but would not affect the amounts recognized.
• If non‑adjusting events are material, an entity is required to disclose the nature of the event and an estimate of its financial effect. The estimate does not need to be precise. It is preferable to provide a range of estimated effects as an indication of impact to not providing any quantitative information at all. However, where quantitative effect cannot be reasonably estimated, qualitative description should be provided, along with a statement that it is not possible to estimate the effect.
• However if the company has business in China and regarding to this if there are any events that has a material impact on the business these should be treated as adjusting events and necessary adjustments in the financial statements should be made to reflect the events to give a fair presentation.

Ghana- Reporting Date: 31-Mar:

Spread Reported in Mar 2020:

• In the case of the Company C in Ghana, the spread reported before the reporting date. Since the events that are indicative of the conditions arose before the end of the reporting period, any material events are to be treated as adjusting events. The amounts in the financial statements must be adjusted to reflect events after the end of the reporting period.
• However, there is no universal ‘flip’ point at which entities should view all COVID‑19 related impacts to be adjusting events. Instead, each event should be assessed to determine whether it provides evidence of conditions that existed at the end of the reporting period or whether it reflects a change in conditions after the reporting date.

Answer 2

IAS 10 identifies two types of events.

Events after the reporting date	Definition	Financial statement effects
Adjusting events	Those that provide evidence of conditions that existed at the reporting date	Adjust the amounts recognised in the financial statements
Non-adjusting events	Those that are indicative of conditions that arose after the reporting date	Disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made

Therefore, companies need to evaluate all events that occurred after their reporting date and assess:

• which of those events provide additional evidence of conditions that existed at the reporting date and for which financial statements need to be adjusted; vs  
• which lead to disclosure only.  

When assessing the impact of COVID-19 events after the reporting date, management needs to do the following.

• Identify and consider all subsequent events until the date the financial statements are authorised for issue and determine whether these events are adjusting – i.e. they provide evidence of conditions that existed as at the reporting date or indicate that the going concern assumption is inappropriate .
• Disclose the nature and financial effects of events that are considered to be material, even if they are non-adjusting.

# Genral Guidelines regarding IAS 10-

At 31 December 2019, the situation in respect of the coronavirus was that, a number of cases of infection of an unknown virus was reported to the World Health Organisation. At the time, very little was known about the virus.

There was insufficient knowledge:

a)about the kind of virus;

b)that the infection involved human-to-human transmission;

c)that the infection could lead to death;

d)about quarantine measures that have not yet been taken or announced; and

e)about later measures such as transport / travelling restrictions.

The knowledge gained subsequently on the virus as a new coronavirus (Covid 19), does not provide additional evidence about the condition that existed at 31 December 2019. Hence, it is a non-adjusting event at 31 December 2019.

With respect to reporting periods ending on or before 31 December 2019, there is a general consensus that the effects of the COVID-19 outbreak are the result of events that arose after the reporting date (e.g., in the UK, the Financial Reporting Council has stated that COVID-19 in 2020 was a non-adjusting event for the vast majority of UK companies preparing financial statements for periods ended 31 December 2019). For later reporting dates (e.g. February or March 2020 year ends), it is likely to be a current-period event which will require ongoing evaluation to determine the extent to which developments after the reporting date should be recognized in the reporting period.

- Hence as per the guidelines the companies having reporting date on or before 31 Dec, 2019, should assess the COVID 19 As Non Adjusting events . Other companies should assess it as an Adjusting Event. Reporting of cases of the corona is not relevant as COVID-19 is a global pandemic

	Company A	Company B	Company c
Country	China	UK	Ghana
Reporting date	31st October 2019	31st December 2019	31st March 2020
COVID - First case reported	November 2019	February 2020	March 2020
Event	Non adjusting	Non - adjusting	Adjusting event

-If management concludes the impact of non-adjusting events are material, the company is required to disclose the nature of the event and an estimate of its financial effect. If it cannot be reliably quantitively estimated, there still needs to be a qualitative disclosure, including a statement that it is not possible to estimate the effect.