IAS 10 provides that events after the reporting period are of two types: adjusting events, which provide evidence of conditions that existed at the end of the reporting period and require an entity to adjust the amounts recognised in its financial statements; and non-adjusting events, which are indicative of conditions that arose after the reporting period and do not require such adjustment.

Definition of Events After the Reporting Period

The Standard defines events after the reporting period as those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue, distinguishing two types: (a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events), and (b) those that are indicative of conditions that arose after the reporting period (non-adjusting events).

Adjusting Events: The Rule and an Example

The Standard provides that an entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period. Among the examples the Standard gives of such events is the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period.

Non-Adjusting Events: The Rule and an Example

The Standard provides that an entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period. As an example, the Standard cites a decline in fair value of investments between the end of the reporting period and the date when the financial statements are authorised for issue, since such a decline does not normally relate to the condition of the investments at the end of the reporting period but reflects circumstances that arose subsequently.

Dividends Declared After the Reporting Period

The Standard provides that if an entity declares dividends to holders of equity instruments after the reporting period, it shall not recognise those dividends as a liability at the end of the reporting period.

Illustrative Example (with Assumed Figures)

Suppose an entity's reporting period ends on 31 December, and one of its customers is declared bankrupt on 15 January of the following year because of a financial deterioration that already existed at 31 December. This bankruptcy is an adjusting event, and the entity must recognise a loss allowance for expected credit losses that reflects this evidence. If, instead, the bankruptcy resulted from a fire that broke out at the customer's factory on 20 January, this would be a non-adjusting event, because it reflects a condition that arose after the end of the reporting period. This example is purely illustrative.

Why Does This Distinction Matter for Audit and Oversight?

The distinction between adjusting and non-adjusting events is central to the final audit work on financial statements, since auditors must examine the period between the end of the reporting period and the date the financial statements are authorised for issue, looking for any additional evidence of conditions that already existed when the statements were prepared. The later the authorisation date, the longer this window becomes, and the greater the likelihood that events will arise requiring either adjustment or additional disclosure — whether those events are adjusting events requiring a change to the recognised amounts, or non-adjusting events requiring only disclosure in the notes without changing the amounts recognised.

Legal References

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