AICAS FIRST IFRS WORKSHOP 26 TH JUNE 2010 IAS 10 – EVENTS AFTER THE REPORTING PERIOD

AICAS FIRST IFRS WORKSHOP26TH JUNE 2010IAS 10 – EVENTS AFTER THE REPORTING PERIOD CA Rajiv Kohli CA DeeptiKheror • B Com Hons FCA DISA, B Com ACA, AICWA Head Internal Audit, SOX & IFRS Asst. Vice President Inmacs Management Services Ltd.

Contents • IAS 10 Applicable to events after balance sheet date of 2003 and last modified in May 2008 • AS 4 (revised 1995) • Exposure Draft AS 4 20XX • Revised standard expected to be notified around 15th July 2011 CA Rajiv Kohli CA Deepti Kheror

MEANING & APPLICABILITY • Events after the reporting period are defined as events which occur between the end of reporting date and the date when the financial statements are authorized for issue. These events are significant events both favourable and unfavourable which have occurred during the intervening period between the reporting date and authorization date. • IAS 10 prescribes: • Circumstances when an entity should adjust its financial statements for events after the reporting period and • Disclosures which an entity has to give about the date of authorization of the financial statements and events after the reporting period CA Rajiv Kohli CA Deepti Kheror

CLASSIFICATION OF EVENTS EVENTS OCCURING AFTER THE REPORTING PERIOD Adjusting Events Non-Adjusting Events Events that provide evidence of conditions existed at the reporting date Events that arose subsequent to the reporting date CA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT Adjusting event is an event • occurring after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, • including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate CA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT TYPES OF ADJUSTING EVENTS • Fixed Assets: The subsequent determination of the purchase price or of the proceeds of sale of assets purchased or sold before the year-end. • Investments: The receipt of a copy of the financial statements or other information in respect of an unlisted company which provides evidence of a diminution other than temporary in the value of a long term investment. • Taxation: The receipt of information concerning clarification of tax law CA Rajiv Kohli CA Deepti Kheror

ADJUSTING EVENT TYPES OF ADJUSTING EVENTS • Stocks and Work in Progress: The receipt of proceeds of sales after the balance sheet date or other evidence concerning the net realizable value of stocks. • Debtors: The renegotiation of amounts owed by debtors, the insolvency of a debtor or the receipt of cash or other information indicating that the recoverable amount at the balance sheet date is not fairly stated. • Claims: Amounts received or receivable in respect of insurance or legal claims which were in course of negotiation at balance sheet date • Discoveries: The discovery of errors or frauds which show that financial statements were incorrect CA Rajiv Kohli CA Deepti Kheror

NON-ADJUSTING EVENT Non-Adjusting event is an event • after the reporting period that is indicative of a conditions that arose after the end of the reporting period CA Rajiv Kohli CA Deepti Kheror

NON-ADJUSTING EVENT TYPES OF NON-ADJUSTING EVENTS • Mergers, Acquisitions and Business Combinations • Reconstructions and proposed reconstructions • Allotment/ buy back of shares and debentures • Losses of Fixed Assets or stocks as a result of a catastrophe such as fire or flood or earthquake • Closing significant part of the trading activities if this was not anticipated at the year end • Changes in rates of Foreign Exchange • Strikes and other labour disputes • Change in tax rate that affect deferred tax asset and liability • Beginning of a litigation that arises out of events happening after reporting date. CA Rajiv Kohli CA Deepti Kheror

GOING CONCERN ISSUES • An entity shall not prepare its financial statements on a going concern basis if the management determines after the reporting date • either that it intends to liquidate the entity • or to cease trading • or that it has no realistic alternative but to do so • Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate CA Rajiv Kohli CA Deepti Kheror

IAS 10 THROUGH A FEW EXAMPLES EXAMPLES OF ADJUSTING EVENTS Example 1 Facts :- • Settlement of a court case after the reporting date – A client sued the company for damage against the company’s failure to fulfil warranty amounting to Rs. 2 Lacs. The company created a provision of Rs. 1 lac based on legal advice. After the end of reporting period but before the date of authorization of financial statements the court decided against the company and a compensation of Rs. 1.5 lac was awarded. CA Rajiv Kohli CA Deepti Kheror

Analysis of Example 1 :- • This issue is covered in IAS 10.9(a). The entity shall adjust the previously recognized provision under IAS 37 or create a new provision. • It has now to provide for addition of Rs. 0.5 lac. The entity does not merely disclose a contingent liability since the settlement provides an additional evidence. CA Rajiv Kohli CA Deepti Kheror

Example 2 Facts :- • After approval of the accounts by the board of directors, your client a construction company met a rocky surface on a project, against which it expects a non-reimbursable cost of Rs. 80 Lacs. The project is expected to be a loss project and the entire estimated loss other than Rs. 80 lacs has already been provided for. The audit report has not been issued. The amount is material. Advise on the accounting. CA Rajiv Kohli CA Deepti Kheror

Analysis of Example 2 :- • The condition of rocky surface existed on the balance sheet date, though it was identified after the balance sheet date. The Board of Directors should revise the financial statements, since the accounts are still not audited. • Had the accounts been audited and approved at the AGM, revision would have not been permissible. CA Rajiv Kohli CA Deepti Kheror

Example 3 Facts :- • Whether a liability on wage revisions for past periods on which agreement was reached or expected to reach after the balance sheet date to be recognized at the balance sheet date? CA Rajiv Kohli CA Deepti Kheror

Analysis of Example 3 :- • The company was aware on the balance sheet date, that the revision of past wages was probable as it had sent proposals in respect thereof although the final amount was subject to approval of the government and settlement with its workers. • Since the condition about the wage revision existed at the balance sheet date the liability arising from wage revision subsequent to the balance sheet date but in respect of past wages should be provided in the accounts based on a best estimate. CA Rajiv Kohli CA Deepti Kheror

IAS 10 THROUGH A FEW EXAMPLES EXAMPLES OF NON-ADJUSTING EVENTS Example 1 • Cheques received after the balance sheet date but bearing Balance Sheet or Pre Balance Sheet Date:- In accordance with ICAI opinion, published in the ICAI journal of February 2005, cheques received after the balance sheet date, though containing the balance sheet date or pre balance sheet date should not be recognized in the financial statements. This is in accordance with the accounting framework for recognition of assets and liabilities. CA Rajiv Kohli CA Deepti Kheror

COMPARISON OF ADJUSTING & NON-ADJUSTING EVENT CA Rajiv Kohli CA Deepti Kheror

DISCLOSURES UNDER IAS 10 • Disclosure of Authorization: • An entity should disclose the date when the financial statements were authorized for issue and who gave that authorization. • If the owners of the entity or others have the power to amend the financial statements after issuance, the fact is disclosed CA Rajiv Kohli CA Deepti Kheror

DISCLOSURES UNDER IAS 10 • Updating Disclosures : An entity shall update disclosure that relate to the conditions that existed at the reporting date in the light of any new information that it receives after the reporting about those conditions. CA Rajiv Kohli CA Deepti Kheror

COMPARISON OF IAS 10 & AS-4 CA Rajiv Kohli CA Deepti Kheror

Comparison of AS 4( Revised 20XX), IAS 10 & IFRIC 17 • Requirements contained in the AS 4 (Revised 20XX) same as those contained in IAS 10 • No difference between the AS 4 (Revised 20XX), IAS 10 and, IFRIC 17 CA Rajiv Kohli CA Deepti Kheror

Conflicting issues with Schedule VI • Dividend declared entity after the reporting period, is not recognised as a liability at end of the reporting period under AS 4 (Revised 20XX). Such dividend required to be disclosed in notes to balance sheet, in accordance with AS 1 (Revised 20XX) • In contrast, dividend declared but not paid or proposed dividend both shown as liability in financial statements as per requirements of Schedule VI to the Companies Act, 1956 CA Rajiv Kohli CA Deepti Kheror

APPLICATION AT TIME OF IMPLEMENTING IFRS 1 • At date of transition to IFRS, an entity may need to make estimates under IFRS that were not required at that date under Indian GAAP • To achieve consistency with IAS 10, those estimates under IFRS shall reflect conditions that existed at the date of transition to IFRS • Eg: a constructive obligation that was not recognised under Indian GAAP should be included in opening IFRS Balance Sheet using estimates for expected future cash outflows and discount rates that existed at that time CA Rajiv Kohli CA Deepti Kheror

www.inmacs.com CA Rajiv Kohli Head Internal Audit, Sox and IFRS Mob: 9873430075 rajivkohli@inmacs.com, inmacs.sox@gmail.com CA DeeptiKheror Asst. Vice President Mob: 9811192162 deeptikheror@inmacs.com THANK YOU Offices: Delhi ChandigarhMumbai 504, Chiranjiv Tower, 43, Nehru Place, No 1048, Sector 18-C, First Floor 105 Chartered House, 293/297 New Delhi – 110 019, Chandigarh 160018, Dr. CawasjiHormasji Street, Tel : +91 11 2622 6933, 2622 3712, 2622 8410 Tel: 0172-5077789,5077790 Near Marine Lines, Mumbai 400002 Tel: 91 22 2201 9601 ChennaiBangalore No. 17, 46th Street, Ashok Nagar 105, A Block, Collasseo Ventures, Chennai- 600 083, S.No.118/119, Behind Indian Oil Petrol Bunk, Tel : +91 44 2489 2279, 2489 1343, Marathahalli, Bangalore -560 037

AICAS FIRST IFRS WORKSHOP 26 TH JUNE 2010 IAS 10 – EVENTS AFTER THE REPORTING PERIOD