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Given these facts, what is the “authorization date” in terms of IAS 10?
Solution
The date of authorization of the financial statements of Excellent Corp. for the year ended December 31, 2009, is March 20, 2010, the date when the board
approved them and authorized them for issue (and not the date they were approved in the AGM by the shareholders). Thus, all post – reporting period
events between December 31, 2009, and March 20, 2010, need to be considered by Excellent Corp. for the purposes of evaluating whether they are to be
accounted for or reported under IAS 10.
CASE STUDY 2
Suppose in the above-cited case, the management of Excellent Corp. was required to issue the financial statements to a supervisory board (consisting solely
of nonexecutives including representatives of a trade union). The management of Excellent Corp. had issued the draft financial statements to the
supervisory board on March 16, 2010. The supervisory board approved them on March 17, 2010, and the shareholders approved them in the AGM held
on April 10, 2010. The approved financial statements were filed with the Company Law Board on April 20, 2010.
Required
Would the new facts have any effect on the date of authorization?
Solution
In this case, the date of authorization of financial statements would be March 16, 2010, the date the draft financial statements were issued to the supervisory
board. Thus, all post – reporting period events between December 31, 2009, and March 16, 2010, need to be considered by Excellent Corp. for the
purposes of evaluating whether they are to be accounted for or reported under IAS 10.
ADJUSTING AND NONADJUSTING EVENTS (AFTER THE REPORTING PERIOD)
Two kinds of events after the end of the reporting period are distinguished by the Standard. These are, respectively, “adjusting events after the reporting period” and
“nonadjusting events after the reporting period.” Adjusting events are those post – reporting period events that provide evidence of conditions that actually existed at
the end of the reporting period, albeit they were not known at the time. Financial statements should be adjusted to reflect adjusting events after the end of the reporting
period.
Typical examples of adjusting events are
• The bankruptcy of a customer after the reporting period usually suggests a loss of trade receivable at the end of the reporting period.
• The sale of inventory at a price substantially lower than its cost after the reporting period confirms its net realizable value at the end of the reporting period.
• The sale of property, plant, and equipment for a net selling price that is lower than the carrying amount is indicative of an impairment before the end of the
reporting period.
• The determination of an incentive or bonus payment after the reporting period when an entity has a constructive obligation at the end of the reporting period.
• A deterioration in the financial position (recurring losses) and operating results (working capital deficiencies) of an entity that has a bearing on the entity’s
continuance as a “going concern” in the foreseeable future.
Facts
CASE STUDY 3
During the year 2009, Taj Corp. was sued by a competitor for $15 million for infringement of a trademark. Based on the advice of the company’s legal
counsel, Taj Corp. accrued the sum of $10 million as a provision in its financial statements for the year ended December 31, 2009. Subsequent to the end
of the reporting period, on February 15, 2010, the Supreme Court of the country decided in favor of the party alleging infringement of the trademark and
ordered the defendant (Taj Corp.) to pay the aggrieved party a sum of $14 million. The financial statements were prepared by the company’s management
on January 31, 2010, and approved by the board on February 20, 2010.
Required