Definition
Adjusting events, also referred to as post-balance-sheet events, are incidents that occur between the balance-sheet date and the date on which financial statements are approved. These events provide additional evidence of conditions that existed as of the balance-sheet date. Adjusting events necessitate changes in the financial statements to reflect that new evidence, ensuring that the statements present a “true and fair view” of the company’s financial status.
Examples
Impairment of Assets: If a valuation conducted after the balance-sheet date reveals that a property held is permanently impaired, the financial statements must be adjusted to reflect this impairment.
Settlement of Lawsuits: If a company concludes a lawsuit and the settlement is finalized after the balance-sheet date but relates to conditions that existed as of that date, the financial statements must be updated accordingly.
Receipt of Information Confirming an Estimated Amount: Receiving new information about a customer’s insolvency after the balance-sheet date which was evident before, necessitates an adjustment.
Frequently Asked Questions
Q: Are adjusting events only relevant for single-instance occurrences?
A: No, adjusting events are not limited to single-instance occurrences. They can include any events that provide additional evidence about conditions existing at the balance-sheet date.
Q: How do adjusting events differ from non-adjusting events?
A: Adjusting events give evidence of conditions that existed at the balance-sheet date and require changes to the financial statements. Non-adjusting events only indicate conditions that arose after the balance-sheet date and typically do not require adjustment but may need disclosure.
Q: What is the role of adjusting events in compliance with FRS 102 and IAS 10?
A: Section 32 of the Financial Reporting Standard (FRS) applicable in the UK and IAS 10 establish guidelines for identifying and accounting for adjusting events to ensure financial statements present a true and fair view.
Q: When should adjusting events be recognized?
A: Adjusting events should be recognized between the balance-sheet date and the date the financial statements are approved for issue.
Related Terms
- Non-Adjusting Events: Events after the balance-sheet date that do not provide evidence of conditions existing at that date but are significant enough to disclose in the notes of the financial statements.
- Financial Statements: Reports that provide an overview of a company’s financial condition, including the balance sheet, income statement, and cash flow statement.
- True and Fair View: A fundamental concept in accounting meaning that financial statements should faithfully represent the financial position and performance of an entity.
- FRS 102: A standard outlining specific requirements for accounting practices in the UK and Republic of Ireland.
- IAS 10: An International Accounting Standard that provides guidance on principles related to events occurring after the reporting period.
Online References
- International Accounting Standards Board (IASB) IAS 10
- Financial Reporting Council (FRC) UK FRS 102 Section 32
Suggested Books for Further Studies
- “International Financial Reporting Standards (IFRS) Workbook and Guide” by Abbas A. Mirza and Graham Holt
- “Financial Accounting: Tools for Business Decision Making” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
Accounting Basics: “Adjusting Events” Fundamentals Quiz
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