Financial Accounting Practical

Topics: Auditing, Financial audit, Balance sheet Pages: 9 (2259 words) Published: November 30, 2013
RELEVANT TO ACCA QUALIFICATION PAPER F8

Subsequent events
Students of financial reporting and auditing papers will have to gain an understanding of how subsequent events (also known as ‘events after the reporting period’) affect the financial statements of an entity. This article will consider the financial reporting aspects concerning subsequent events using a case study type scenario, and will then discuss the auditing requirements that candidates of Paper F8, Audit and Assurance need to be aware of. Financial reporting considerations

In almost all circumstances, financial statements will not be finalised until a period of time has elapsed between the year-end date and the date on which the financial statements are (expected to be) issued. Therefore, regard has to be given to events that occur between the reporting date and the date on which the financial statements are (expected to be) authorised for issue. IAS 10, Events After the Reporting Period stipulates the accounting and disclosure requirements concerning transactions and events that occur between the reporting date and the (expected) date of approval of the financial statements. Among other things, IAS 10 determines when an event that occurs after the reporting date will result in the financial statements being adjusted, or where such events merely require disclosure within the financial statements. Such events are referred to in IAS 10 as ‘adjusting’ or ‘non-adjusting’ events. Students who have studied Paper F3, Financial Accounting will have come across such terminology and it is imperative that they can differentiate between an adjusting and a non-adjusting event. IAS 10 prescribes the definitions of such events as follows:

Adjusting event
An event 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.1

Non-adjusting event
An event after the reporting period that is indicative of a condition that arose after the end of the reporting period.1
Example 1
You are the trainee accountant of Gabriella Enterprises Co and are preparing the financial statements for the year-ended 30 September 2010. The financial statements are expected to be approved in the Annual General Meeting, which © 2011 ACCA

2
SUBSEQUENT EVENTS
APRIL 2011

is to be held on Monday 29 November 2010. Today’s date is 22 November 2010. You have been made aware of the following matters:
1. On 14 October 2010, a material fraud was discovered by the bookkeeper. The payables ledger assistant had been diverting funds into a fictitious supplier bank account, set up by the employee, which had been occurring for the past six months. The employee was immediately dismissed, legal proceedings against the employee have been initiated and the employee’s final wages have been withheld as

part-reimbursement back to the company.
2. On 20 September 2010, a customer initiated legal proceedings against the company in relation to a breach of contract. On 29 September 2010, the company’s legal advisers informed the directors that it was unlikely the company would be found liable; therefore no provision has been made in the financial statements, but disclosure as a contingent liability has been made. On 29 October 2010, the court found the company liable on a technicality and is now required to pay damages amounting to a material sum.

3. On 19 November 2010, a customer ceased trading due to financial difficulties owing $2,500. As the financial statements are needed for the board meeting on 22 November 2010, you have decided that because the amount is immaterial, no adjustment is required. The auditors have also confirmed that this amount is immaterial to the draft financial statements.

Required:
(a) For each of the three events above, you are required to discuss whether the financial statements...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Accounting Standards Essay
  • Introduction to Accounting Essay
  • accounting theory 1,chapter 1 Essay
  • Understanding Financial Statements Essay
  • Essay on The Accounting Systems of the United States and France
  • Intermediate Accounting, 7th edition, Solution Manual Essay
  • Financial Accounting Textbook Solution Essay
  • Accounting: the Financial Accounting Standards Board (Fasb) Essay

Become a StudyMode Member

Sign Up - It's Free