1. 20-1 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Events after the balance sheet date Chapter 20

2. 20-2 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Learning objectives Understand that, in the period between reporting date (or ‘balance sheet date’) and the date the financial report is authorised for issue, new information often becomes available that provides additional evidence of conditions that existed at reporting date, or reveals for the first time a condition that existed at reporting date, and that such new information must be reflected in the financial statements (Continues)

3. 20-3 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Learning objectives (cont.) Understand that financial statements are often not released for over 10 weeks after reporting date, and that to make them more ‘relevant’ it is sometimes appropriate to add notes giving additional information about material events that have occurred since the reporting date Be aware of the specific disclosure requirements stipulated in NZ IAS 10 ‘Events after the balance sheet date’ (Continues)

4. 20-4 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Status of newly converged accounting standards Prior to 2005 – The relevant standard was FRS-5 ‘Accounting For Events Occurring After Balance Date’ From 2005 – The new standard is NZ IAS 10 ‘Events after the Balance Sheet Date’

5. 20-5 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider What is an after-balance-sheet- date event? Balance sheet date – also referred to as ‘reporting date’ – end of the financial period (typically 12 months) – for most New Zealand companies this is 31 March Date financial report is authorised for issue – for companies: date the Directors’ statement of authorisation is signed – for other entities: date of final approval of the report by the entity’s management or governing body (Continues)

6. 20-6 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider What is an after-balance-sheet- date event? (cont.) After-balance sheet-date event – An event or circumstance that has arisen or information that has become available after reporting date but prior to the date the financial report is authorised for issue NZ IAS 10 addresses: – the accounting treatment of events or transactions that occur or in respect of which information becomes available between the reporting date and when financial reports are authorised for issue (Continues)

7. 20-7 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider What is an after-balance-sheet- date event? (cont.) Balance sheet date 31 March for most NZ companies Authorisation date for companies: date directors approve the financial statements for issue. Could be many weeks and up to 5 months after balance date For other entities: date of approval of financial statements by management/ governing body Period of time in which an item or event is considered an ‘event after balance sheet date’

8. 20-8 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider What is an after-balance-sheet- date event? (cont.) Time lag of many weeks or months between: – end of financial year; and – date that shareholders and other interested parties receive the financial reports Many material events can occur after reporting date Failure to disclose such events can render accounts misleading

9. 20-9 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Subsequent events There are two basic types of subsequent events (after-reporting-date events) requiring consideration (NZ IAS 10): 1. Adjusting events after reporting date 2. Non-adjusting events after reporting date

10. 20-10 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Adjusting events after balance sheet date Adjusting events: – can be both favourable and unfavourable – provide additional evidence of, or further elucidate, conditions existing at reporting date Financial statements are to reflect financial effect of events occurring after reporting date that: – provide additional evidence of conditions existing at reporting date; or – reveal for the first time a condition that existed at balance sheet date (Continues)

11. 20-11 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Adjusting events after balance sheet date (cont.) NZ IAS 10 requires: – adjustments to amounts in financial statements to reflect adjusting events after reporting date Additional information might become available to estimate more accurately year-end provisions: – e.g. the settlement of a legal claim outstanding at reporting date New information might come to light revealing for the first time a condition existing at reporting date: – e.g. the destruction of a building at a remote site (Continues)

12. 20-12 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Adjusting events after balance sheet date (cont.) Other examples (NZ IAS 10): – receipt of information after reporting date that an asset was impaired at reporting date – determination after reporting date of cost of assets purchased – determination after reporting date of amount of profit sharing or bonus payments – discovery of fraud or errors showing that the financial statements are incorrect (Continues)

13. 20-13 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Adjusting events after balance sheet date (cont.) Dividends proposed or declared after reporting date (NZ IAS 10): – are not to be recognised as a liability in the balance sheet If after reporting date there is an indication that the entity is no longer a going concern (NZ IAS 10): – financial statements are no longer to be prepared on the going concern basis Determining whether or not an entity is a going concern is dependent on professional judgment

14. 20-14 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Non-adjusting events Non-adjusting events: – can be both favourable and unfavourable – provide evidence about new conditions If an event is material of nature, it should be disclosed in the notes NZ IAS 10 stipulates that: – an entity should not adjust its financial statements to reflect non-adjusting events (Continues)

15. 20-15 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Non-adjusting events (cont.) Some examples (NZ IAS 10): – major business combination or an entity disposing of a major subsidiary after reporting date – announcing a plan to discontinue an operation – purchases of major assets – destruction of major production plant by fire after reporting date – announcing or commencing major restructuring – major ordinary share transactions after reporting date

16. 20-16 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Determining the treatment of an event occurring after balance sheet date Event occurring after balance sheet date Does it create a new condition as distinct from any conditions that might have existed at balance sheet date? Does it provide evidence of further elucidate conditions that existed at balance sheet date? Recognise by way of a note to the extent that the item or transaction is material Event or transaction to be included within the financial statements to the extent that it can be quantified. If it cannot be quantified, it should be included as a note to the financial statements (e.g. contingent liability) NO YES

17. 20-17 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Disclosure requirements ‘Adjusting events’ would be recognised in an entity’s financial statements either by (NZ IAS 10): – being brought to account (if relating to an item that would be brought to account); or – included by way of a note (if relating to an item that would be disclosed by way of a note, e.g. a contingent liability) (Continues)

18. 20-18 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Disclosure requirements (cont.) For material ‘non-adjusting events’ an entity must disclose (NZ IAS 10): – nature of the event; and – an estimate of its financial effect; or – a statement that such an estimate cannot be made

19. 20-19 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin Slides prepared by Grant Samkin and Annika Schneider Summary The chapter considers various issues associated with events occurring after reporting date After-balance-date events are either adjusting events or non-adjusting events For adjusting events: – either adjust the financial statements (if material); or – disclose them in the notes For non-adjusting events: – disclose them in the notes (if material)