Events after the reporting period are those events, both favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue. This period is often called the ‘subsequent events period’.

TYPES OF EVENTS

IAS 10 classifies subsequent events into:

• Adjusting Events: Adjusting events are those that provide additional evidence about conditions that already existed at the end of the reporting period. These events confirm what was already true as of the reporting date, even if the outcome became known only after that date. For example, if a customer who owed money to the company is declared bankrupt in January, shortly after year-end, this confirms that the receivable was already impaired at the reporting date. Another example would be the settlement of a legal case after year-end, which provides clarity on an obligation that existed as of the reporting date. Since these events give further insight into the financial position as it stood at year-end, the entity must adjust the figures in the financial statements accordingly. This ensures that the financial information reflects all conditions that were present, even if confirmed slightly later.
• Non-Adjusting Events: Non-adjusting events are those that relate to conditions that arose only after the reporting date. These do not shed light on the company’s position as at the end of the reporting period but may still be significant in nature. For instance, if the company announces a major acquisition, suffers a fire at one of its factories, or experiences a significant market crash after the year-end, these are all considered non-adjusting events. Since these events reflect new circumstances, they are not adjusted for in the financial statements. However, if they are material – that is, if they could influence the economic decisions of users of the financial statements, they must be disclosed in the notes. The disclosure should describe the nature of the event and provide an estimate of the financial impact, or state if such an estimate cannot be made.

SPECIAL CASE: DIVIDENDS DECLARED AFTER YEAR-END

According to IAS 10, if dividends are declared by the board after the reporting date but before the financial statements are authorized for issue, they must not be recognized as a liability in those financial statements. For example, if the board declares dividends on 10 January 2025 in respect of profits earned during the year ended 31 December 2024, this event falls into the category of a non-adjusting event. The entity should therefore not recognize a liability as at 31 December 2024 but should instead disclose the dividend declaration in the notes to the financial statements in accordance with IAS 1.

DATE OF AUTHORIZATION FOR ISSUE

Entities are required to disclose the date when the financial statements were authorized for issue and who provided that authorization, usually the board of directors. Additionally, if the entity’s owners or another party have the power to amend the financial statements after they have been issued, this fact must also be disclosed. This helps ensure transparency around the finality of the figures presented in the financial statements.

GOING CONCERN CONSIDERATIONS

IAS 10 emphasizes the impact of subsequent events on the going concern assumption. While most events after the reporting period do not affect the assumption that the entity will continue in business, some events may cast significant doubt on this. For instance, if a company loses a major customer after the year-end and is unable to find alternatives, this may threaten the company’s viability. If such an event occurs before the financial statements are authorized for issue and it becomes clear that the entity is no longer a going concern, then the financial statements must be prepared using an alternative basis, such as liquidation basis and not the going concern basis. This kind of event, although it occurs after the reporting period, is considered an adjusting event due to its fundamental effect on the entire financial reporting framework.

DISCLOSURE REQUIREMENTS

For material non-adjusting events, entities must disclose:

• The nature of the event, and
• An estimate of its financial effect, or
• A statement that such an estimate cannot be made.

These disclosures ensure that users of financial statements are informed of significant developments that, while not affecting the figures, are still relevant to decision-making.

Example 1: On January 10, 2025, Entity A acquires Entity B for AED 50 million. The reporting period ended on 31 December 2024, and financial statements are authorized on 15 February 2025. The acquisition took place after year-end and did not exist at the reporting date. Although significant, it is a non-adjusting event.

Disclosure – On 10 January 2025, the Company acquired 100% of the share capital of Entity B. The total purchase consideration was AED 50 million. Had the acquisition occurred before year-end, it would have significantly impacted the assets and liabilities of the Group.

Example 2: On January 5, 2025, a warehouse containing inventory worth AED 10 million burns down in a fire. The fire occurred after the year-end and is unrelated to conditions at 31 December 2024.

Disclosure – On 5 January 2025, a fire destroyed one of the Group’s major warehouses, resulting in an estimated inventory loss of AED 10 million. The Group is assessing insurance coverage and replacement plans.

IAS 10 ensures that financial statements not only capture the entity’s financial position as at the reporting date but also adequately reflect important developments before those statements are finalized. This balance between adjusting and non-adjusting events, supplemented by disclosure, strengthens the relevance and reliability of financial information.