Events After the Balance Sheet Date is an important term used in financial accounting and refers to those significant activities or events that happen after the balance sheet date but before the date of authorization for the issuance of financial statements. International Accounting Standard (IAS) 10 specifically addresses the accounting treatment for this. It is also called subsequent event or events after the reporting period. The subsequent event can be favorable and unfavorable.
There are two sets of procedures and situations which need to be addressed in doing any accounting treatment which is as follows:
Events that provide evidence of the conditions that existed at the balance sheet date. In this case, the entity has to amend its financial statement to include the effect of this event. This is also called Adjusting events.
Events that are indicative of conditions that arose after the balance sheet date. In this case, there is no need to make any changes in the financial statements. It is also called non-adjusting events.
If the non-adjusting events are material and could affect on the decision-makers of the users of the financial statements, then there is a need to disclose the information and if possible, a statement or estimate of financial effect should also be included within the disclosure.
The dividend proposed after the balance sheet date needs not to be presented in the income statement. Instead, it should be included in the disclosure section of the financial statements.
Examples
Adjusting events – a major customer of the company goes into liquidation, as a result, the company has to account for bad debt expense and as a result need to make changes in the financial statements. This transaction needs to be accounted for because there is an allowance for doubtful debt exist at the balance sheet date. This is why it is an adjusting event.
Non-adjusting event – a decline in the market value of the investment after the balance sheet date does not require adjustment but there is a need to disclose this information in the financial statements because it influences the decisions of the users.