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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-1/” type=”big” color=”red”] Return to Section 1 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Section 32 – Example 1 – Events After the End of the Reporting Period
Section 32: Events after the End of the Reporting Period
Section 32 defines events after the end of the reporting period and sets out principles for recognising, measuring and disclosing those events.
Events after the end of the reporting period defined
Extract from FRS102: Section 32.2- 32.3
32.2 Events after the end of the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. There are two types of events:
(a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the end of the reporting period); and
(b) those that are indicative of conditions that arose after the end of the reporting period (non-adjusting events after the end of the reporting period).
32.3 Events after the end of the reporting period include all events up to the date when the financial statements are authorised for issue, even if those events occur after the public announcement of profit or loss or other selected financial information.
OmniPro comment
It is clear that Section 32 applies from the start of the accounting period up until the date the financial statements are authorised for issue. Preliminary announcement of results are ignored, it is the date the financial statements are approved by the directors for filing that matters.
The exception to Section 32.2(b) is where conditions have arisen after the period end (from period end to the date of signing the auditor’s report) that indicate that the going concern concept is no longer appropriate then this should be treated as an adjusting post balance sheet event.
Example 1: Application
A piece of land sold by a Company subject to planning where planning had not been obtained pre year end, should not be recognised as a sale in that year. The fact that planning is obtained post year end is not an adjusting post balance sheet event.
If on the other hand this was sold without planning and if planning is obtained the price will increase, then the sale would be recognised at its fair value at the balance sheet date depending on probabilities. If just after year end, planning is or is not obtained, then the year end sale is not adjusted. It is instead treated as a non-adjusting post balance sheet event and therefore disclosed.
Recognition and measurement – Adjusting events after the end of the reporting period
Extract from FRS102: Section 32.4-32.5
32.4 An entity shall adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the end of the reporting period.
32.5 The following are examples of adjusting events after the end of the reporting period that require an entity to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised:
(a) The settlement after the end of the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period. The entity adjusts any previously recognised provision related to this court case in accordance with Section 21 Provisions and Contingencies or recognises a new provision. The entity does not merely disclose a contingent liability. Rather, the settlement provides additional evidence to be considered in determining the provision that should be recognised at the end of the reporting period in accordance with Section 21.
(b) The receipt of information after the end of the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:
(i) the bankruptcy of a customer that occurs after the end of the reporting period usually confirms that a loss existed at the end of the reporting period on a trade receivable and that the entity needs to adjust the carrying amount of the trade receivable; and
(ii) the sale of inventories after the end of the reporting period may give evidence about their selling price at the end of the reporting period for the purpose of assessing impairment at that date.
(c) The determination after the end of the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period.
(d) The determination after the end of the reporting period of the amount of profit- sharing or bonus payments, if the entity had a legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date (see Section 28 Employee Benefits).
(e) The discovery of fraud or errors that show that the financial statements are incorrect.
OmniPro comment
The above examples deal with post balance sheet events dealing with instances of:
- Settlement of legal cases after year end
- Information about bankruptcy of a debtor after year end
- Information about inventory impairment
- Providing further information on the measurement of assets sales/purchases made pre year end
- Information about fraud or errors within that reporting periods financial statements
- As detailed below, a decision to cease trading or liquidate an entity after year end but before authorising the accounts for issue is an adjusting event and the accounts should be prepared on a break-up basis.
See below some further examples proving the points above.
Example 2: Recoverability of trade debtor balances
Company A was owed €100,000 from customer B at year end. Following year end the customer got into financial difficulty and is trying to enter an arrangement with creditors. Based on discussions with the Customer here, it is likely these events would force Company A to provide against the receivable balance of €100,000.
Example 3: Indicators of impairment of PPE/land etc.
Company A owns a property stated in the year end accounts at €500,000. Prior to issuing the financial statements a valuation was performed on this property for the purposes of valuing the company. This placed a value of €300,000. Under Section 27, this is an indicator of impairment and a provision should be made to write the asset down to €300,000 assuming the fair value less cost to sell is higher than value in use.
Example 4: Profit on sale of plant after year end following decision to close
Company A decided to close one of its factories and has announced the closure and redundancies to all relevant parties pre year end. In accordance with Section 21 a provision for restructuring costs has been included in the year end accounts. Subsequent to the year end the company sold its factory for a profit. Can the entity use the profit element to reduce the provision?
The answer is no as Section 21 specifically disallows profits on disposal of fixed assets to be netted against a provision. Therefore it is a non-adjusting event. Fixed assets would be dealt with by Section 27-Impairment of assets.
Example 5: Closing office and relocating
Company A has operations in a number of counties. Prior to year end it announced that one of the locations would close and that all staff will be relocated to another location. All parties have been advised pre year end and the client has included a provision for same. Is this an adjusting event/can a provision be included?
The answer is no, as Section 21 specifically dis-allows relocation provisions. This is also supported by Section 28-Employee benefits.
Other examples of adjusting events include:
- Serious defects discovered after year end in warrantied products sold before the year end leading to replacement or refunds required to be given.
- Rebate received after year end for pre year end purchases
- Settlement with revenue after year end in relation to audit period pre year end.
Recognition and measurement – Non-adjusting events after the end of the reporting period
Extract from FRS102: Section 32.6-32.7
32.6 An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the end of the reporting period.
32.7 Examples of non-adjusting events after the end of the reporting period include:
(a) A decline in market value of investments between the end of the reporting period and the date when the financial statements are authorised for issue. The decline in market value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances that have arisen subsequently. Therefore, an entity does not adjust the amounts recognised in its financial statements for the investments. Similarly, the entity does not update the amounts disclosed for the investments as at the end of the reporting period, although it may need to give additional disclosure in accordance with paragraph 32.10.
(b) An amount that becomes receivable as a result of a favourable judgement or settlement of a court case after the reporting date but before the financial statements are authorised for issued. This would be a contingent asset at the reporting date (see paragraph 21.13), and disclosure may be required. However, agreement on the amount of damages for a judgement that was reached before the reporting date, but was not previously recognised because the amount could not be measured reliably, may constitute an adjusting event.
OmniPro comment
Detailed below are examples of non-adjusting events where disclosure would be required:
- Decline in market value of investments since year end – non-adjusting post balance sheet event (Section 32.7(a)).
- Favourable judgement in a court case after year end where judgement given pre year end but not able to measure reliably – then an adjusting post-balance sheet event (Section 32.7(b)).
- Favourable judgement in a court case after year end where it was considered remote that money would be received – then a non-adjusting post-balance sheet event (Section 32.7(c)).
- A major business combination or disposal of a major subsidiary (Section 32.11(a))
- Announcement of a plan to discontinue an operation (Section 32.7(b))
- Major purchases of assets, disposals or plans to dispose of assets, or expropriation of major assets by government (Section 32.7(c))
- The destruction of a major production plant by a fire (Section 32.7(d))
- Announcement, or commencement of the implementation, of a major restructuring (Section 32.7(e))
- Issues or repurchases of an entity’s debt or equity instruments (Section 32.7(f))
- Abnormally large changes in asset prices or foreign exchange rates (Section 32.7(g)
- Changes in tax rates or tax laws enacted or announced that have a significant effect on current and deferred tax assets and liabilities (Section 32.7(h)). Here these would include changes in tax rates which were enacted after the balance sheet date. The effect of the change on tax on the deferred tax balance would need to be provided in the year end accounts.
- Entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees (Section 32.7(i)) and
- Commencement of major litigation arising solely out of events that occurred after the end of the reporting period (Section 32.7(j)).
Examples of non-adjusting events not mentioned in the standard are:
- Subsequent rectification of a breach or default of covenants on loans, or the renegotiation of the terms of the loan is not an adjusting event therefore the liabilities should be shown within current liabilities in the financial statements at the year end.
- Significant acquisitions or disposals made after the balance sheet date. Where there is a present and a binding agreement that has been entered into Section 4 of FRS 102 requires
- A description of the asset or disposal group
- Description of facts and circumstances about the sale
- The carrying amount of the assets or group of assets
- Inventory physically damaged or destroyed after year end (whether by fire, flood or disaster etc.) is a non-adjusting event. Disclosure may be required where material.
- Dividends declared after the year end (see section below).
Going concern
Extract from FRS102: Section 32.7-32.7B
32.7A An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.
32.7B Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate.
If the going concern assumption is no longer appropriate, the effect is so pervasive that this section requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting and therefore the disclosure requirements of paragraph 3.9 apply.
OmniPro comment
Section 3-Financial Statement Presentation- contains guidance and specific disclosures when the financial statements are not prepared on a going concern basis or there are uncertainties that cast doubt about the entity’s ability to continue as a going concern.
Once a decision has been made to close post year end it is evident that the accounts should be restated to a break up basis.
The disclosure requirements referred to in Section 32.7B are that the financial statement must have disclosures detailing the fact that they have been prepared on a break-up basis the reasoning why the financial statements have not been prepared on a going concern basis.
See below an example disclosure where accounts are prepared on a basis other than a going concern.
Example 6: Other than Going concern disclosure
Basis of preparation
As explained in the directors’ report on page X, the company intends to cease operations by XXXX and to transfer all its operations to XXXXX.
The financial statements have not been prepared on a going concern basis. Where appropriate, the carrying values of assets have been restated to their recoverable amounts, and liabilities have been restated to their estimated settlement amounts and classified as current. Provision has been made for all closure costs arising from the decision to cease trading.
Preparation of financial statements on a break up basis involves the company making estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually re-evaluated.
Dividends
Extract from FRS102: Section 32.8
32.8 If an entity declares dividends to holders of its equity instruments after the end of the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period because no obligation exists at that time. The amount of the dividend may be presented as a segregated component of retained earnings at the end of the reporting period.
OmniPro comment
It is clear that dividends declared after year end are a non-adjusting event; instead they should be disclosed. Dividends which are approved by the directors prior to year end and therefore accrued should be disclosed in the financial statements.
Company law requires the disclosure of dividend declared after year end but before the issue of the financial statements.
Transition exemptions
Section 35 provides no exemptions on adoption of Section 32 of FRS 102. This is not an issue as the standard is the same as what was included in old GAAP.
Principal transition adjustments
As detailed above there are no differences between old GAAP and Section 32.
Disclosure
Extract from FRS102: Section 32.9-.32.10
Date of authorisation for issue
32.9 An entity shall disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the entity’s owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact.
Adjusting events after the end of the reporting period
Any of these events will be recognised in the financial statements so disclosure where required will be provided in line with the relevant Section of FRS 102.
Non-adjusting events after the end of the reporting period
Extract from FRS102: Section 32.10
32.10 An entity shall disclose the following for each category of non-adjusting event after the end of the reporting period:
(a) the nature of the event; and
(b) an estimate of its financial effect or a statement that such an estimate cannot be made.
OnmiPro comments
See the disclosure section in each part of the standard in the website for all adjusting events as the disclosure requirements are dealt with by each standard.
Example 7: Extract for the approval of the financial statements
The financial statements were approved by the Board of Directors on (Insert date) and authorised for issue on (insert date). They were signed on its behalf by
Mr A Director Ms B Director
Director Director
DATE: __________________ DATE: __________________
Example 8: Extracts for some non-adjustment post balance sheet events.
Extract from notes to the financial statements
Events after the balance sheet date
On 1 February XXX the company acquired intangible assets for a consideration of €XX.
OR
Subsequent to the year end the directors decided to cease trading. All assets of the company have been disposed of to another group company for €XXXX.
OR
On 31 December XXX, the shareholders of XXXX Limited (formerly XXXX Limited) (a company controlled by the directors of this company) decided to separate the company’s investment activities from its trading activities. As a result the company transferred the trade assets and liabilities to XXXXX by way of a distribution in specie in return for shares in this company being issued to the company’s shareholders. As part of the reorganisation the name of the company was also changed to XXXX Limited. The following assets and liabilities were transferred to XXXX Limited as part of the re-organisation:
| € | ||
| Tangible fixed assets | XXXX | |
| Stock | XXXX | |
| Debtors | XXXX | |
| Cash | XXXX | |
| Payables | (XXXX)
|
|
| XXXXX
|
OR
The company succeeded in its claim against XXXXX which arose as a result of the loss of earnings due to restrictions imposed on the company. A Court Appeal hearing after year end made an award of €XXXXX plus costs. This has not been recognised in the financial statements at 31 December 2015 on the basis that at the balance sheet date the outcome of the case was not certain.
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