Adjusting Events in Accounting
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Questions and Answers

What is the primary characteristic of a non-adjusting event in financial reporting?

It concerns conditions that did not exist at the statement of financial position date.

How does the materiality of a non-adjusting event affect its disclosure in financial reports?

Non-adjusting events are typically non-material.

Why might non-disclosure of a non-adjusting event not affect the ability to understand the financial statements?

Because the non-adjusting event is non-material.

What is the recommended method of disclosing non-adjusting events?

<p>Disclose by way of note.</p> Signup and view all the answers

Why are non-adjusting events disclosed by way of notes rather than adjusting the financial statements?

<p>Because they concern conditions that did not exist at the statement of financial position date.</p> Signup and view all the answers

What criteria must be met for an event to be considered an adjusting event?

<p>The event must occur before the accounts are signed, provide evidence of conditions that existed at the statement of financial position date, and be material.</p> Signup and view all the answers

Why is it important to adjust accounts for events that provide evidence of conditions that existed at the statement of financial position date?

<p>It ensures that the financial statements accurately reflect the financial position and performance of the entity as of the statement date.</p> Signup and view all the answers

What is the significance of an event being 'material' in the context of adjusting events?

<p>Material events are significant enough to influence the economic decisions of users based on the financial statements.</p> Signup and view all the answers

How does the timing of an event determine whether it is an adjusting event or not?

<p>An event must occur before the accounts are signed and provide evidence of conditions that existed at the statement of financial position date to be considered an adjusting event.</p> Signup and view all the answers

In what ways can adjusting events change the accounts?

<p>Adjusting events can lead to changes in asset valuations, provisions for liabilities, and the recognition of income or expenses, among others.</p> Signup and view all the answers

What is the definition of an 'adjusting event'?

<p>An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period.</p> Signup and view all the answers

How does a 'non-adjusting event' differ from an 'adjusting event'?

<p>A non-adjusting event is indicative of a condition that arose after the end of the reporting period, whereas an adjusting event provides further evidence of conditions that existed at the end of the reporting period.</p> Signup and view all the answers

Provide an example of a non-adjusting event.

<p>An example of a non-adjusting event could be a natural disaster occurring after the end of the reporting period.</p> Signup and view all the answers

Can an 'event after the reporting period' be both favourable and unfavourable? Explain.

<p>Yes, an event after the reporting period can be both favourable and unfavourable.</p> Signup and view all the answers

Why is it important to distinguish between adjusting and non-adjusting events?

<p>It is important to distinguish between adjusting and non-adjusting events to determine whether the financial statements need to be adjusted or if the event should be disclosed in the notes.</p> Signup and view all the answers

What adjusting event would indicate that the going concern assumption for an entity is not appropriate?

<p>Events that indicate the going concern assumption in relation to the whole or part of the entity is not appropriate.</p> Signup and view all the answers

How would the settlement of a court case after the reporting date affect financial statements?

<p>It confirms that the entity had a present obligation at the reporting date.</p> Signup and view all the answers

What is the impact of a customer's bankruptcy after the reporting date on trade receivables?

<p>It confirms a loss existed at the reporting date.</p> Signup and view all the answers

What does the sale of inventories after the reporting date inform about their valuation?

<p>It gives evidence about their net realizable value at the reporting date.</p> Signup and view all the answers

Why would the discovery of fraud or errors after the reporting date require adjustments to the financial statements?

<p>Because they show the financial statements are incorrect.</p> Signup and view all the answers

What must be disclosed about the nature of a prior period error?

<p>The nature of the prior period error for each prior period presented, to the extent practicable, the amount of the correction.</p> Signup and view all the answers

When must the amount of correction for basic and diluted earnings per share be disclosed?

<p>When the entity is applying IAS 33.</p> Signup and view all the answers

What additional information must be provided if retrospective restatement is impracticable?

<p>An explanation and description of how the error has been corrected.</p> Signup and view all the answers

At what point should the amount of the correction be disclosed?

<p>At the beginning of the earliest prior period presented.</p> Signup and view all the answers

What are the two specific details that need to be included when disclosing the amount of correction for each financial statement line item affected?

<p>The nature of the prior period error and the amount of the correction.</p> Signup and view all the answers

Why is a major business combination or disposal of a subsidiary considered a non-adjusting event?

<p>It occurs after the reporting date.</p> Signup and view all the answers

Explain why the destruction of a major production plant by fire after the reporting date is classified as a non-adjusting event.

<p>Because it happens after the reporting date.</p> Signup and view all the answers

Can changes in tax rates or tax law be considered as an adjusting event? Why or why not?

<p>No, because they occur after the reporting date.</p> Signup and view all the answers

What is the reason behind classifying major ordinary share transactions as non-adjusting events?

<p>These transactions occur after the reporting date.</p> Signup and view all the answers

Describe why entering into major commitments such as guarantees after the reporting date is a non-adjusting event.

<p>Because the commitment is entered into after the reporting date.</p> Signup and view all the answers

How must an entity correct material prior period errors according to IAS 8?

<p>By restating the comparative amounts for the prior period(s) presented in which the error occurred, or if the error occurred before the earliest prior period presented, by restating the opening balances of assets, liabilities, and equity for the earliest prior period presented.</p> Signup and view all the answers

When an error occurred before the earliest prior period presented, what should an entity do according to IAS 8?

<p>Restate the opening balances of assets, liabilities, and equity for the earliest prior period presented.</p> Signup and view all the answers

What adjustment does IAS 8 require when correcting material prior period errors?

<p>Adjustment of retained earnings.</p> Signup and view all the answers

Why is it important to restate comparative amounts for prior periods when correcting an error under IAS 8?

<p>To ensure the financial statements are accurate and comparable across periods, reflecting the true financial position of the entity.</p> Signup and view all the answers

What is the main purpose of IAS 8 in the context of accounting errors?

<p>To ensure that material prior period errors are corrected retrospectively, providing accurate and reliable financial information.</p> Signup and view all the answers

Study Notes

Events After the Reporting Period

  • An event after the reporting period is an event that occurs between the end of the reporting period and the date when the financial statements are authorized for issue.

Adjusting Events

  • An adjusting event is an event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period.
  • Examples of adjusting events include:
    • Events that indicate the going concern assumption is not appropriate
    • Settlement of court cases that confirm a present obligation at the reporting date
    • Bankruptcy of a customer that confirms a loss on trade receivables at the reporting date
    • Sales of inventories that give evidence of their net realisable value at the reporting date
    • Determination of the cost of assets purchased or proceeds from assets sold before the reporting date
    • Discovery of fraud or errors that show the financial statements are incorrect

Non-Adjusting Events

  • A non-adjusting event is an event after the reporting period that is indicative of a condition that arose after the end of the reporting period.
  • Examples of non-adjusting events include:
    • Major business combinations or disposal of a subsidiary
    • Major purchase or disposal of assets, classification of assets as held for sale or expropriation of major assets by government
    • Destruction of a major production plant by fire after the reporting date
    • Announcing a plan to discontinue operations
    • Announcing a major restructuring after the reporting date
    • Major ordinary share transactions
    • Changes in tax rates or tax law
    • Entering into major commitments such as guarantees

Disclosures Relating to Prior Period Errors

  • The nature of the prior period error for each prior period presented
  • The amount of the correction for each financial statement line item affected and for basic and diluted earnings per share
  • The amount of the correction at the beginning of the earliest prior period presented
  • If retrospective restatement is impracticable, an explanation and description of how the error has been corrected

Accounting Errors

  • IAS 8 requires that an entity correct all material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery
  • Correction involves restating the comparative amounts for the prior period(s) presented in which the error occurred or restating the opening balances of assets, liabilities, and equity for the earliest prior period presented
  • Correction requires adjustment of retained earnings

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Description

This quiz assesses your understanding of adjusting events in accounting, including events that occur before accounts are signed, evidence of conditions that existed at the statement of financial position date, and material changes to the accounts.

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