European Union Accounting Rule 19 PDF

**EUROPEAN UNION** **ACCOUNTING RULE 19** **Events After the Reporting Date** **I N D E X** 1\. Objective 3 2\. Scope 3 3\. Definitions 3 4\. Authorising the Financial Statements for Issue 3 5\. Recognition and Measurement 4 6\. Adjusting Events After the Reporting Date 4 7\. Non-adjusting...

**EUROPEAN UNION** **ACCOUNTING RULE 19** **Events After the Reporting Date** **I N D E X** 1\. Objective 3 2\. Scope 3 3\. Definitions 3 4\. Authorising the Financial Statements for Issue 3 5\. Recognition and Measurement 4 6\. Adjusting Events After the Reporting Date 4 7\. Non-adjusting Events After the Reporting Date 5 8\. Dividends or Similar Distributions 5 9\. Going Concern 5 10\. Restructuring 6 11\. Disclosure 7 12\. Updating Disclosure about Conditions at the Reporting Date 7 13\. Disclosure of Non-adjusting Events After the Reporting Date 7 14\. Effective date 8 15\. Reference to other rules 8 Objective ========= The objective of this EU accounting rule is to prescribe when an EU entity should adjust its financial statements and/or the disclosures that an EU entity should give about the date when the financial statements were authorised for issue and about events after the reporting date. Scope ===== This EU accounting rule applies to accounting for and disclosures of all material events after the reporting date to be provided by all the EU reporting entities in their financial reporting. Definitions =========== The following terms are used in this accounting rule with the meanings specified: 1. **Events after the reporting date** are those events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue. Two types of events can be identified: a. #### **Adjusting events after the reporting date are** those that provide evidence of conditions that existed [at the reporting date]; and b. #### **Non-adjusting events after the reporting date** are those that are indicative of conditions that arose [after the reporting date]. 2. **Reporting date** means the date of the last day of the reporting period to which the financial statements relate. Authorising the Financial Statements for Issue ============================================== In order to determine which events satisfy the definition of events after the reporting date, it is necessary to identify both the reporting date and the date on which the financial statements are authorised for issue. The reporting date is the last day of the reporting period to which the financial statements relate. The date of authorisation for issue is the date on which the financial statements have received approval from the individual or body with the authority to finalise those statements for issue. The audit opinion is provided on those finalised financial statements. Events after the reporting date are all events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue. - *The reporting date in the EU context is according to art. 145 FR 31 December year N.* - *The date of authorisation for issue for the consolidated annual accounts of the EU is the date when the accounts are adopted by the Commission, which shall happen at the latest on 31 July year N+1 (art. 148 FR).* The process involved in preparing and authorising the financial statements for issue may vary for different types of entities within and across jurisdictions/institutions. It can depend upon the nature of the entity, the governing body structure, the statutory requirements relating to that entity and the procedures followed in preparing and finalising the financial statements. Responsibility for authorisation of financial statements of individual EU institutions and bodies may rest with the senior finance official/accounting officer. In some cases, as the final step in the authorisation process, an entity is required to submit its financial statements to another body (for example, a governing body in a join undertaking). This body may have the power to require changes to the audited financial statements. In other cases, the submission of statements to the other body may be merely a matter of protocol or process and that other body may not have the power to require changes to the statements. The date of authorisation for issue of the financial statements will be determined in the context of the particular jurisdiction/institutional governance. Recognition and Measurement =========================== In the period between the reporting date and the date of authorisation for issue, EU institutions may announce intentions in relation to certain matters. Whether or not these announced intentions would require recognition as adjusting events would depend upon whether they provide more information about the conditions existing at reporting date and whether there is sufficient evidence that they can and will be fulfilled. In most cases, the announcement of institutions intentions will not lead to the recognition of adjusting events. Instead, they would generally qualify for disclosure as non-adjusting events. Adjusting Events After the Reporting Date ========================================= An EU entity shall adjust the amounts recognised in its financial statements to reflect *material* adjusting events after the reporting date. The adjusting events are those that provide evidence of conditions that existed at the reporting date. The following are examples from outside and inside the EU context of adjusting events after the reporting date that require an entity to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised: \(a) The settlement after the reporting date of a court case that confirms that the entity had a present obligation at the reporting date. The entity adjusts any previously recognised provision related to this court case in accordance with EU accounting rule 10 or recognises a new provision. The entity does not merely disclose a contingent liability because the settlement provides additional evidence that would be considered in accordance with EU accounting rule 10. \(b) The receipt of information after the reporting date indicating that an asset was impaired at the reporting date, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example the bankruptcy of a debtor which occurs after the reporting date usually confirms that a loss already existed at the reporting date relating to a loan and that the entity needs to adjust the carrying amount of the loan; and \(c) The determination after the reporting date of the cost of assets purchased, or the proceeds from assets sold, before the reporting date; \(d) The determination after the reporting date of the amount of revenue collected during the reporting period to be shared with another entity under a revenue sharing agreement in place during the reporting period; \(e) The determination after the reporting date of performance bonus payments to be made to staff if the entity had a present legal or constructive obligation at the reporting date to make such payments as a result of events before that date; and \(f) The discovery of fraud or errors that show that the financial statements were incorrect. Non-adjusting Events After the Reporting Date ============================================= An EU entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting date. The following are examples of non-adjusting events after the reporting date from inside and outside the EU context: \(a) The decline in the fair value of financial instruments measured at fair value between the reporting date and the date when the financial statements are authorised for issue. The fall in fair value does not normally relate to the condition of the financial instrument at the reporting date, but reflects circumstances that have arisen in the following period. Therefore, despite its policy of regularly revaluing, an entity would not adjust the amounts recognised in its financial statements for the financial instrument. Similarly, the entity does not update the amounts disclosed for the financial instrument as at the reporting date, although it may need to give additional disclosure under section 12; and \(b) Damage to property, plant and equipment after the reporting date caused by a natural disaster or by an accident. The damage to the asset has happened after the reporting date and thus is not confirming a situation that has already existed at the reporting date. If the damage is material in comparison to the overall value or service potential of the asset and material for a reader of the financial statements it needs to be disclosed in the notes to the financial statements. Dividends or Similar Distributions ================================== If an entity declares dividends or similar distributions after the reporting date, the entity shall not recognise those distributions as a liability at the reporting date. Dividends may arise in the public sector when, for example, a public sector entity controls and consolidates the financial statements of a profit seeking entity that has outside ownership interests to whom it pays dividends. If dividends or similar distributions to owners are declared (i.e. the dividends or similar distributions are appropriately authorised and no longer at the discretion of the entity) after the reporting date but before the financial statements are authorised for issue, the dividends or similar distributions are not recognised as a liability at the reporting date because they do not meet the criteria of a present obligation in EU accounting rule 10. Such dividends or similar distributions are disclosed in the notes in accordance with EU accounting rule 1. Dividends and similar distributions do not include a return of capital. Going Concern ============= The determination of whether the going concern assumption is appropriate needs to be considered by each entity. However, the assessment of going concern is likely to be of more relevance for individual entities than for the EU institutions and bodies as a whole. For example, an individual EU agency may not be a going concern because the EU institution of which it forms part has decided to transfer all its activities to another EU agency. However, this restructuring has no impact upon the assessment of going concern for the EU itself. An entity shall not prepare its financial statements on a going concern basis if those responsible for the preparation of the financial statements or the governing body determine after the reporting date either that there is an intention to liquidate the entity or to cease operating, or that there is no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate for an individual entity, those responsible for the preparation of the financial statements, and/or the governing body, need to consider a wide range of factors. Those factors will include the current and expected performance of the entity, any announced and potential restructuring of organisational units, the likelihood of continued government funding and, if necessary, potential sources of replacement funding. In the case of entities whose operations are substantially budget-funded, going concern issues generally only arise if the EU institution announces its intention to cease funding the entity. Some agencies, although not profit-seeking, may be required to be fully or substantially self-funding, and to recover the cost of goods and services from users. For any such entity, deterioration in operating results and financial position after the reporting date may indicate a need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, this accounting rule requires an entity to reflect this in its financial statements. The impact of such a change will depend upon the particular circumstances of the entity, for example, whether operations are to be transferred to another EU entity, sold or liquidated. Judgment is required in determining whether a change in the carrying value of assets and liabilities is required. When the going concern assumption is no longer appropriate, it is also necessary to consider whether the change in circumstances leads to the creation of additional liabilities or triggers clauses in debt contracts leading to the reclassification of certain debts as current liabilities. EU accounting rule 1 requires certain disclosures if: \(a) The financial statements are not prepared on a going concern basis. EU accounting rule 1 requires that when the financial statements are not prepared on a going concern basis, this must be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not considered to be a going concern; or \(b) Those responsible for the preparation of the financial statements are aware of material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern. The events or conditions requiring disclosure may arise after the reporting date. EU accounting rule 1 requires such uncertainties to be disclosed. Restructuring ============= Where a restructuring announced after the reporting date meets the definition of a non-adjustable event, the appropriate disclosures are made in accordance with this Standard. Guidance on the recognition of provisions associated with restructuring is found in EU accounting rule 10. Simply because a restructuring involves the disposal of a component of an entity this does not in itself bring into question the entity's ability to continue as a going concern. However, where a restructuring announced after the reporting date means that an entity is no longer a going concern, the nature and amount of assets and liabilities recognised may change. Disclosure ========== *[Disclosure of Date of Authorisation for Issue]* An entity shall disclose the date when the financial statements were authorised for issue and who gave that authorisation. If another body has the power to amend the financial statements after issuance, the entity shall disclose that fact. It is important for users to know when the financial statements were authorised for issue, as the financial statements do not reflect events after this date. It is also important for users to know of the rare circumstances in which any persons or organisations have the authority to amend the financial statements after issuance. Examples of individuals or bodies that may have the power to amend the financial statements after issuance are Commissioners or Members of a governing board. If changes are made, the amended financial statements are a new set of financial statements. Updating Disclosure about Conditions at the Reporting Date ========================================================== If an entity receives information after the reporting date, but before the financial statements are authorised for issue, about conditions that existed at the reporting date, the entity shall update disclosures that relate to these conditions, in the light of the new information. In some cases, an entity needs to update the disclosures in its financial statements to reflect information received after the reporting date but before the financial statements are authorised for issue, even when the information does not affect the amounts that the entity recognises in its financial statements. One example of the need to update disclosures is when evidence becomes available after the reporting date about a contingent liability that existed at the reporting date. In addition to considering whether it should now recognise a provision an entity updates its disclosures about the contingent liability in the light of that evidence. Disclosure of Non-adjusting Events After the Reporting Date =========================================================== If non-adjusting events after the reporting date are material, non-disclosure could influence the economic decisions of users taken on the basis of the financial statements. Accordingly, an entity shall disclose the following for each material category of non-adjusting event after the reporting date: \(a) The nature of the event; and \(b) An estimate of its financial effect, or a statement that such an estimate cannot be made. The following are examples of non-adjusting events after the reporting date that would generally result in disclosure: \(a) An unusually large decline in the value of property carried at fair value, where that decline is unrelated to the condition of the property at reporting date, but is due to circumstances that have arisen since reporting date; \(b) The entity decides after reporting date, to provide/distribute substantial additional benefits in the future directly or indirectly to participants in community service programs that it operates, and those additional benefits have a major impact on the entity; \(c) An acquisition or disposal of a major controlled entity or the outsourcing of all or substantially all of the activities currently undertaken by an entity after the reporting date; \(d) Announcing a plan to discontinue an operation or major program, disposing of assets or settling liabilities attributable to a discontinued operation or major program, or entering into binding agreements to sell such assets or settle such liabilities; \(e) Major purchases and disposals of assets; \(f) The destruction of a major building by a fire after the reporting date; \(g) Announcing, or commencing the implementation of, a major restructuring; \(h) The introduction of legislation to forgive loans made to entities or individuals as part of a program; \(i) Abnormally large changes after the reporting date in asset prices or foreign exchange rates; \(k) Entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees after the reporting date; and \(l) Commencing major litigation arising solely out of events that occurred after the reporting date. Effective date ============== This rule shall be effective for annual financial statements covering periods beginning on or after 1 January 2015. Reference to other rules ======================== This accounting rule is based on the IPSAS 14 \'Events After the Reporting Date\'.