What’s the issue?
External events that cause economic uncertainty – e.g. a natural disaster, geopolitical affairs or a pandemic – can evolve rapidly and impact how companies evaluate and disclose events after the reporting date (‘subsequent events’). Depending on a company’s reporting date, the impacts of specific external events could be adjusting or non-adjusting events.
Under IAS 10 Events After the Reporting Period, events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue require disclosure or possibly affect recognition and measurement in the financial statements. [Insights 2.9.20–30]
IAS 10 identifies two types of events.
|Events after the reporting date||Definition||Financial statement effects|
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:
- those events that provide additional evidence of conditions that existed at the reporting date and warrant adjustment of amounts in the financial statements (adjusting events); and
- those that arose after the reporting date and warrant disclosure only (non-adjusting).
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Companies need to exercise significant judgement in determining which events after the reporting date are adjusting events.
Getting into more detail
Considerations for assessing events after the reporting period
This chart illustrates how companies with different reporting dates would evaluate and disclose the impacts of the events arising from the recent conflict in Ukraine.
Click to enlarge image (JPEG)
Impact at reporting date(s)
31 December 2021 and 31 January 2022
For 31 December 2021 and 31 January 2022 financial statements, the financial reporting effects of these events and market conditions are generally non-adjusting events (with the exception of going concern). This is because the significant adverse changes in economic conditions and the political/business environment developed as a direct consequence of events arising after the reporting date – i.e. the Russian government’s military invasion of Ukraine and the resulting implementation of economic sanctions by the international community.
Although certain events may have already occurred before 31 December 2021 or 31 January 2022 (in particular, the fact that Russian troops were mobilised around the Ukrainian border and certain sanctions had previously been imposed), the invasion of Ukraine was a specific, defined event that occurred only on 24 February 2022 – i.e. after the reporting date – and the significant sanctions imposed, as a co-ordinated package by the international community, were a direct response to that invasion. Therefore, based on information about these events and market conditions that was reasonably available as at 31 December 2021 and 31 January 2022, although market participants may have reflected the risks as a result of the uncertainty arising from the escalating tensions in the region in their assumptions, they would not have reflected the impacts of the invasion and the significant response from the international community that followed.
Subsequent periods – including 28 February and 31 March 2022
For companies with reporting periods ending on or after 24 February, and calendar year end companies reporting in the first quarter of 2022, these events and market conditions are likely to be a current-period event that will require ongoing evaluation to determine the extent to which developments after the respective reporting date should be recognised in that reporting period.
As the impacts continue to evolve, capturing events that relate specifically to conditions that existed at or before the reporting date – i.e. adjusting events – will require careful assessment. To do that, companies need to carefully assess their specific facts and circumstances to identify events that generally represent the culmination of a series of conditions that existed at or before the reporting date.
For material non-adjusting events, companies are required to disclose the nature of the event and an estimate of its financial effect, or a statement that an estimate cannot be made. A non-adjusting event is considered material if it is of such importance that non-disclosure would affect the ability of the financial statements’ users to make proper evaluations and decisions. [Insights 184.108.40.206]
As the date of authorisation moves further from the reporting date, users might expect that a company would have more information available to disclose an estimate of the financial effects of a non-adjusting event.
Actions for management
When assessing the impact of 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.
References to ‘Insights’ mean our publication Insights into IFRS®
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