An Audit Services View of IAS 10 Events After the Reporting Period

Most Dubai audit engagements involve a significant number of estimates in the financial statements, and those estimates naturally shift as circumstances and available information change over time.

IAS 10 gives company audit specialists direction on how to handle events that happen after the reporting date but before the financial statements are finalized, and how, if at all, those statements should be adjusted to reflect them.

Applying a consistent approach to these events makes financial statements easier to compare across industries and over time, without sacrificing the relevance and faithful representation that make them meaningful in the first place.

IAS 10 works through the treatment of two categories of post-reporting-date events, adjusting and non-adjusting, and gives auditors a clear basis for deciding which applies.

Basic Principles of IAS 10: Events After the Reporting Period

A quick look at the core terms IAS 10 works with:

Events after the reporting period are events, favorable or unfavorable, that occur between the reporting date and the date the financial statements are authorized for issue.

Adjusting events provide evidence of conditions that already existed at the reporting date. Whether that fact was actually known at the time doesn’t change the classification, what matters is that the condition itself existed.

Non-adjusting events are indicative of conditions that arose after the reporting date, conditions that did not exist at year-end but emerged in the period before the financial statements were authorized.

Adjusting vs. Non-Adjusting: The Key Distinction

Aspect	Adjusting Event	Non-Adjusting Event
Condition existed at reporting date?	Yes	No, it arose afterward
Effect on financial statements	Amounts recognized are updated	Amounts are not changed
Disclosure	Reflected directly in the statements and notes	Disclosed in the notes if material

Also check: Statutory Audit Services in Dubai

How Audit Firms in Dubai Handle Adjusting and Non-Adjusting Events

Adjusting Events

An adjusting event requires updating the recognized amounts in the financial statements. To do this, audit specialists revise the statement of financial position, the profit and loss statement, the statement of other comprehensive income, and the related notes, so the financial statements reflect the condition that existed at the reporting date.

Non-Adjusting Events

A non-adjusting event does not change the amounts already reflected in the financial statements. Where the event is material, it should still be disclosed in the notes, covering the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.

Where a non-adjusting event indicates that the going concern basis is no longer appropriate for all or part of the entity, this isn’t treated as a simple disclosure matter. It requires a fundamental change to how the financial statements are prepared entirely, since they can no longer be presented on a going concern basis. This is a more serious outcome than ordinary non-adjusting disclosure, not an exception from disclosure.

Every event occurring after the reporting date should be reviewed to determine whether it falls between the reporting date and the date the financial statements are authorized for issue, and then classified accordingly.

Assessment Checklist: Classifying an Event

1. Confirm the event falls within the window between the reporting date and the date the financial statements are authorized for issue.
2. Determine whether the underlying condition existed at the reporting date, even if it wasn’t known at the time.
3. If the condition existed at the reporting date, classify it as adjusting and update the financial statements accordingly.
4. If the condition arose only after the reporting date, classify it as non-adjusting and assess materiality.
5. Where material, disclose the nature of the event and its estimated financial effect in the notes.
6. Separately assess whether the event affects the going concern assumption, since this changes the basis of preparation itself, not just the disclosure.

Based on these principles, Dubai auditing professionals classify each post-reporting event as adjusting or non-adjusting. Adjusting events lead to updated financial statements; material non-adjusting events are disclosed in the notes. Common examples of adjusting events include:

• An entity in Dubai settles a court case after the reporting date that confirms an obligation that already existed at the reporting date.
• Fraud or errors that are discovered after the reporting date but relate to the reporting period.
• Profit-sharing payments or bonuses that become payable after the reporting date, where the entity had a present obligation to pay them at the time of reporting.
• A material customer is confirmed to have declared bankruptcy after the reporting date, where the customer was already insolvent and unable to pay creditors before the reporting date.

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Common examples of non-adjusting events include:

• A decline in investment values between the end of the reporting period and the date of authorization
• A business combination or acquisition made after the reporting date
• Fixed assets destroyed by an event, such as a fire, occurring after the reporting date
• Announcement or start of a significant reorganization
• A lawsuit arising from an event that occurred after the reporting period, as opposed to one confirming a pre-existing obligation

Worked Example

A Dubai manufacturing company reports year-end 31 December inventory at cost. In February, before the financial statements are authorized for issue, a major customer is confirmed to have been insolvent since November of the prior year, well before year-end, and formally declares bankruptcy in February. Because the insolvency existed at the reporting date, this is an adjusting event, the company writes down the related receivable in the year-end financial statements. Compare this to a different scenario where the same customer was financially healthy at year-end and only became insolvent in January due to an unrelated event after the reporting date, in that case, the loss would be a non-adjusting event, disclosed in the notes rather than recognized in the financial statements themselves.

Other IAS 10 Principles Worth Noting

Going Concern

Once the reporting date has passed, the going concern basis should no longer be assumed automatically. If a post-reporting event has a major effect on a Dubai or UAE entity’s ability to continue as a going concern, that event is treated as requiring a change to the entity’s basis of preparation, which auditors need to reflect accordingly rather than presenting the accounts as if nothing had changed.

Dividends Declared After the Reporting Date

Dividends declared after the reporting date, but before the financial statements are authorized, fall within IAS 10’s scope. No liability for that dividend is recognized in the financial statements for the reporting period it relates to, since no obligation existed at year-end. As a non-adjusting event, it should still be disclosed in the notes, including the dividend amount, the per-share amount, and whether any portion is a non-cash dividend.

Also check: Financial Statement Audit Services in Dubai

Common Mistakes in Applying IAS 10

• Classifying by when the event was discovered, not when the condition existed. A fact only discovered after year-end can still be an adjusting event if the underlying condition existed at the reporting date.
• Treating going concern issues as routine disclosure. A material going-concern deterioration changes the basis of preparation itself, it isn’t simply another line in the notes.
• Missing the authorization date cutoff. Events need to be assessed up to the date the financial statements are authorized for issue, not just up to the date they are drafted.
• Recognizing dividends declared after year-end as a liability. These are disclosed, not recognized, since no obligation existed at the reporting date.

Frequently Asked Questions

What’s the main test for whether an event is adjusting or non-adjusting?

Whether the underlying condition existed at the reporting date. If it did, it’s adjusting, regardless of when it was discovered. If the condition only arose afterward, it’s non-adjusting.

Does a non-adjusting event ever change the financial statements themselves?

Generally no, it’s disclosed in the notes if material. The one major exception is where the event indicates the going concern basis is no longer appropriate, which changes the basis of preparation entirely.

Are dividends declared after year-end recognized as a liability?

No. Since no obligation existed at the reporting date, they aren’t recognized as a liability, but they are disclosed as a non-adjusting event.

What’s the cutoff date for assessing events after the reporting period?

The date the financial statements are authorized for issue, not the reporting date itself and not simply the date the statements were drafted.

Can an event discovered after year-end still be an adjusting event?

Yes, if the condition it relates to already existed at the reporting date. The date of discovery doesn’t affect the classification.

Applying IAS 10 With Confidence

The judgment call in IAS 10 almost always comes down to one question: did the condition exist at the reporting date, or did it arise afterward. Getting that classification right, and documenting the reasoning behind it, is what makes the difference during audit review.

AFD – Audit Firm in Dubai can help review events after your reporting date and confirm they’ve been classified and disclosed correctly before your financial statements are finalized.