Ind AS 10, Events after the Reporting Period | Ind AS 10 Vs AS 4

Ind AS 10

Ind AS 10, Events after the Reporting Period: The objective of IndAS 10 is to prescribe:

  • when an entity should adjust its financial statements for events after the reporting period; and
  • the disclosures that an entity should give about the date when the financial statements were approved for issue and about events after the reporting

The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.

Events after 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 approved by the Board of Directors in case of a company, and, by the corresponding approving authority in case of any other entity for issue. Two types of events can be identified:

  • those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the reporting period); and
  • those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period).

However, there is an exception to the above principle. In case of a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the agreement by  lender before the approval of the financial statements for issue, to not demand payment as a consequence of the breach, shall be considered as an adjusting event.

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

An entity shall not adjust the  amounts recognised in its financial statements  to reflect non-adjusting events after the reporting period.

However, if non-adjusting events after the reporting period are material and their non-disclosure could influence the economic decisions that users make on the basis of the financial statements, then it shall disclose the following for each material category of non-adjusting event after the reporting period:

  • the nature of the event; and
  • an estimate of its financial effect, or a statement that such an estimate cannot be

If an  entity receives information after the reporting period about conditions  that existed at the end of the reporting period, it shall update disclosures that relate to those conditions, in the light of the new information.Appendix A of Ind AS 10 provides guidance with regard to distribution of non – cash assets as dividends to owners. The Appendix prescribes that liability to pay such a dividend should be recognised when it is appropriately authorised and is no longer at the discretion of the entity. This liability should  be  measured at the fair value of assets to be  distributed.  Any  difference  between the carrying amount of the assets distributed and the  carrying  amount of the dividend payable should be recognised in profit  or  loss  when an entity settles the dividend payable.

AS 4 Ind AS 10
AS 4 requires the disclosure of the same in the report of approving authority. Ind AS 10 requires the disclosure of material non-adjusting events in the financial statements.
AS 4 does not contain any such appendix. Ind AS 10 includes an appendix titled “Distribution of Non-Cash Assets to Owners”, which is an integral part of Ind AS 10. Along with this, it also deals with when to recognize dividends payable to owners.
AS 4 only requires adjustment to assets and liabilities. It does not require a fundamental change in basis of accounting. Further, it also does not require any such disclosure, as is required by Ind AS 1. If after the reporting date, it is determined that the going concern assumption is no longer appropriate, Ind AS 10 requires a fundamental change in the basis of accounting.

In this regards, Ind AS 10 refers to Ind AS 1, which requires an entity to make following disclosures:

  • The fact that financial statements are not prepared on going concern basis
  • The basis on which financial statements are prepared
  • The reason why entity is not regarded as Going Concern.
AS 4 is silent on this aspect. However, Guidance Note on Schedule III, issued by ICAI states that considering that the practical implications of the breach are negligible in the Indian scenario, the entity should continue to classify the loan as “Non Current” as on the Balance Sheet date, provided that the loan is not actually demanded by the bank at any time prior to the date on which the financial statements are approved. The definition of “Events after reporting period” in Ind AS 10 contains a proviso, which specifies that:

  • when there is a breach of any provision/condition of a long term loan agreement on or before the end of the reporting period
  • the breach is so material that the loan long term loan becomes payable on demand
  • subsequently, the lender agrees to waive the breach,
  • the event shall be treated as an adjusting event.

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