Recognition and Measurement

Adjusting Events After the Balance Sheet Date

7. An enterprise should adjust the amounts recognised in its financial statements to reflect adjusting events after the balance sheet date.

8. The following are examples of adjusting events after the balance sheet date that require an enterprise to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised:

   1. the resolution after the balance sheet date of a court case which, because it confirms that an enterprise already had a present obligation at the balance sheet date, requires the enterprise to adjust a provision already recognised, or to recognise a provision instead of merely disclosing a contingent liability;

   2. the receipt of information after the balance sheet date indicating that an asset was impaired at the balance sheet date, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:

      1. the bankruptcy of a customer which occurs after the balance sheet date usually confirms that a loss already existed at the balance sheet date on a trade receivable account and that the enterprise needs to adjust the carrying amount of the trade receivable account; and

      2. the sale of inventories after the balance sheet date may give evidence about their net realisable value at the balance sheet date;

   3. the determination after the balance sheet date of the cost of assets purchased, or the proceeds from assets sold, before the balance sheet date;

   4. the determination after the balance sheet date of the amount of profit sharing or bonus payment, if the enterprise had a present legal or constructive obligation at the balance sheet date to make such payments as a result of events before that date; and

   5. the discovery of fraud or errors that show the financial statements were incorrect.

   Non-Adjusting Events After the Balance Sheet Date

9. An enterprise should not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the balance sheet date.

10. An example of a non-adjusting event after the balance sheet date is a decline in market value of investments between the balance sheet date and the date when the financial statements are authorised for issue. The fall in market value does not normally relate to the condition of the investments at the balance sheet date, but reflects circumstances that have arisen in the following period. Therefore, an enterprise does not adjust the amounts recognised in its financial statements for the investments. Similarly, the enterprise does not update the amounts disclosed for the investments as at the balance sheet date, although it may need to give additional disclosure under paragraph 21.

    Dividends

11. If dividends to holders of equity instruments are proposed or declared after the balance sheet date, an enterprise should not recognise those dividends as a liability at the balance sheet date.

12. FRS 101₂₀₀₄, Presentation of Financial Statements, requires an enterprise to disclose the amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorised for issue. FRS 101₂₀₀₄ permits an enterprise to make this disclosure either:

    1. on the face of the balance sheet as a separate component of equity; or

    2. in the notes to the financial statements.
       
       

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