OK the first topic for today is this I use den which is events after the reporting period.
And let me now create some space for myself to explain Neil.
You know that businesses they prepare their financial statements and when you have a month full financial
year you are closing your financial period here.
So usually your financial year is like from 1st January.
It's not a compulsion but usually you have from 0 1 0 1 2010 8.
Let's suppose or 2018 and you are closing your period on say 0 0 1 0 1.
I'm sorry thirty first December.
OK let me make it 20 19 so that it is more clear to us.
OK we'll make it 20 19.
So because it has just finished so 0 1 0 1 20 19 so you start from January and you prepare your financial
statements until the next twelve months which is 30 first December.
This is the closing of the year.
Now this date this date which is thirty first December What do you call it.
You call it a reporting date
so this is the date until which you present your financial enough your financial statements.
Now of course on 30 December your year finishes but you can not how to say prepare or submit the financial
statements because you have to the last month of December you still need to close it.
OK.
You still need to check if you still need to make some innovations and then of course there are some
adjustments that you have to check throughout the year whatever you have done.
And plus you cannot present your financial statements which are internally prepared.
These financial statements must be audited by someone.
OK.
I mean it is not possible that if I make financial statements and then I submit it to my shareholders
they would not expect accept it.
I mean because my financial statements they would say that there is a 5 million dollar of inventory
OK there is inventory but is it really 5 million then I would say that I have three million dollars
off receivables.
Now how to prove that my receivables are really three million probably some of the cash has already
been deceived and not reported on probably.
What about the revenues are out of your revenues properly recorded.
Did you take out all of your costs properly.
So that should be your shareholders certainly.
They neither have I nor do they have skills to check all of that.
So what they do they hire some external auditors and they ask you to get your financial statements checked
by the external auditors.
So what we do usually that we prepare our financial statements here internally then we start checking
these financial statements.
If there are any errors Eddie omissions and the adjustments we need to make.
Once we are ready here we we believe that together the financial statements are ready to be to get audited.
We invite the external auditors and hear the external audit as will come and they will start checking
the numbers and the figures and the financial statements and IFRS gives you a period of six months for
this activity.
This is the maximum period.
So it means that if your financial statements are if your annual year is if you are a year and big as
thirty first of December you have time until 30 06 2020 to present your financial statements and this
date this date 30th June whichever you call it discard authorization it
authorization date means that the date at which the financial statements are authorized for submission
to shareholders.
Now what will happen now.
You can imagine that during this period of six months when you were working here during this period
of six months there would be different types of events which wouldn't be happening.
OK.
So there are some transactions going on the business continues to operate the business is doing its
activity and it is possible that some transactions will take place here which will ask you or which
will force you to go back and make changes here or probably here.
So you should remember.
So there is one general idea.
Sometimes students do believe that you know on thirty first of December I have prepared my I have closed
my year and after closing my year I can not make changes.
No.
This perception is not correct.
You have closed your year on thirty first of December during January or February or March or April or
May until you have not presented financial statements.
You have a right to make changes.
So what will happen that what.
Whatever type of transactions will happen here.
You divide them into two categories.
You divide them into two categories you call them adjusting events and you call them non adjusting events
adjusting events.
They require you to make changes
in financial statements.
You know on thirty first December 20 19.
So it is possible that some transaction takes place in the month of March and that transaction I would
regard it as adjusting event.
Now what is an adjusting event.
I'm going to explain.
But first I'm extending you the logic.
So it is possible that some transaction which will take place somewhere in the month of March 20 20
or January 20 20 on February 20 20 it will force me to go back on thirty first of December and make
changes in the financial statements which means that income statement I can change that I can increase
or decrease the revenue or increase decrease the expenses or I can work with the balance you can make
changes in the balance sheet.
So such events are card adjusting events not adjusting events we just disclose.
We do not make changes in the financial statements from the last year.
We just disclose disclose means that we give information and additional notes.
You remember you've got five financial statements income statement balance sheet Statement of Cash Flows
statement of changes in equity and notes to the financial statement so that notes the financial statement
you provide additional income additional information.
You don't change the numbers and income statement.
You don't touch income statement.
You don't touch the balance sheet income statement and balance sheet remains as it is.
You only give additional information in the disclosure notes.
Now I'm sure that you must be thinking that.
What are the adjusting events and what are the non adjusting events adjusting events that forced me
to go back and make changes here.
I will change the I guess I will change the B.S. after three months and that's really normal.
You know you can make the changes you have the right you can just.
I'll give you a simple example.
You know for example you came to me and used that box set.
This is the income statement for the last month.
I prepared it.
Today is January 5th or whatever and I want to submit it to you.
And then I say that you know today's Thursday.
You go and check it and please submit it to me on Monday.
Just have one more look and bring it to me on Monday.
So when I did not accept it from you on Thursday and I said bring it to me on Monday.
So essentially speaking I'm giving you time to make and find out and check it again.
And if you find any mistake in that you have a right to correct it.
And that's why I gave you this.
You know why did I give you a treatise that go check it if there is any error or mistake Please correct
it and then bring it to me on Monday.
So similarly the year ends here but shareholders say give me this financial statements on 30th of June.
And during that period if any mistake is identified any fraud is identified.
Any added is identified any omission is identified.
Please corrected because we don't want to give the wrong information to shareholders.
So this is the general idea not adjusting events that are what adjusting events.
How do you write it.
You know you write it like that a events which
provide further evidence of conditions existed at the reporting date conditions
events which provide further evidence of conditions which existed at the reporting date which mean that
any particular transaction which already was present on thirty first of December and you'll get some
further information.
Further information about that particular transaction.
So it was recorded here.
You can consider you know your provision a very common example I give you a provision for example what
happened that someone during the year here some customer has taken you to court and there is a legal
case going on and you know that there is a big possibility that you will be fined because according
to the contract you must be the compensation but the amount of compensation is not decided on until
thirty first of December.
This 30 first of December comes in and until this date the case has not been agreed but based on your
judgment based on your judgment what do you did that you just created an estimate and you created one
hundred thousand dollar provision.
You knew that approximately this much will be defined.
So what do you did.
You said you know -- it legal expenses and credit provisions because on thirty first of December thirty
first of December you better know that how much will be the fine.
Exactly.
But you created an estimate on thirty first of December debit legal expenses credit provisions.
Then what happens somewhat in the month of February.
The case is decided now.
This is the case now.
This is what as evidence of conditions which existed at the reporting date.
So on reporting date we had some evidence of that on reporting date.
We knew that there is a legal case going on it is not something which has certainly appeared in 2020.
This is a debate.
This is a transaction.
This is an argument which was which started in 2019 and it was present on my financial statements on
20 19 in February.
We just got the decision and the court has find you.
Us suppose I don't know.
Hundred and ten thousand.
Good sir.
OK.
Your fine is real fine is a hundred and ten thousand.
Then you go back and the case.
And when did it happen.
Let's suppose it happens on 20 at the February 20 20.
The court decides fine four dollars hundred and ten thousand.
Then you come back.
Now there is no need for provision you would say big provisions.
Hundred thousand.
So what I'm doing I am removing the provision.
So this transaction I'm going to make change on thirty first of December so GEERS was decided on this
date but I go back to thirty first of December and I make adjustment.
I said there is no need for provision.
I removed the provision Dabiq and I would say you know Dabiq legal expenses ten thousand because previously
I recorded legal expenses only a hundred thousand here I recorded a hundred thousand so ten thousand
I need for that and I would say credit liability and now I create a clear cut liability it is no more
than an uncertain liability it is no more a provision it is a liability because what happened that back
then on 34 December I just created legal expenses.
Hundred thousand.
OK so ten thousand I need to create more and provision was also hundred thousand.
So this provision I just remove I removed the provision I did move and I added back ten thousand further
because the total legal expenses.
Hundred and ten thousand going to be now.
So I charge ten thousand more because hundred we made before and I bought now and I create a clear liability
I said tax a liability no I don't need a provision so this is just one example of existing events there
are many we are going to love but with a very simple example what I wanted to do that I wanted to show
you that this this this court case which was decided somewhere in here in February actually this is
something which started from the last year.
So usually the adjusting events are those events which related to your previous yet activity.
Okay now what I'm not adjusting events we are going to discuss
OK so this is adjusting event and this is actually a standard which they usually include an exam a small
adjustment comes in that that something which happened in January and February and you can see that
is it adjusting or not adjusting etc. So we will discuss that.
Now let me move all this stuff and we start the chapter.
It says that definition events after the reporting period are those events both favorable and unfavorable
that occurred between the end of reporting period and the date when the financial statements are authorized
but issue.
So that six months period there are two types of events after the reporting period.
You called them adjusting events and you call them non adjusting so adjusting these provide evidence
and please use the word further evidence further evidence of conditions which existed at the end of
the reporting period non adjusting events.
These relate to conditions which arose after the reporting period.
So not adjusting those events which are actually happening after the reporting what could be after the
reporting period.
A very common example could be fire.
Let's suppose you know you have in your inventory one million dollars worth of goods and then in January
there is a fire and probably all of that has burnt you have not yet presented your financial statements.
Are you going to go and tell your shareholders that that is a 1 million dollar inventory.
So when you present your financial statements on 30th of June or totally get off 30 first off me.
30th of April whatever date what would what are you going to tell them.
How much is the inventory on the balance sheet.
You will definitely show it one million you will say.
Inventory is 1 million because this fire is a non adjusting event because on thirty first of December
we never knew that defied would happen.
This is not an event which is coming from the previous date.
We had no doubt or we had no fear of that fire.
So it's a non adjusting event however however because your your inventory is already burned.
What do you should do.
You should you should disclose
you should disclose act like I will not decrease the inventory value and balance sheet in balance sheet.
I will call it 1 million.
Okay let's not call it a million because I have to explain something.
Let's call it hundred game OK because a million I want to play for.
Let's call it hundred thousand so hundred thousand of inventory I'm in show on the balance sheet.
As it is on balance sheet I will not change back on.
Disclosure notes I will disclose.
I will tell this additional information to shareholders that listen the inventory which is shown on
the balance sheet it does not exist anymore.
It was burned but because it's a non adjusting event so I did not change the balance sheet.
I kept it there but I am just giving you information.
Listen.
What do we do with financial statements.
The purpose of financial statements is to provide information information which is true and fair view
information which is complete which is unbiased which is you know free from any biased which is neutral.
That is what we have to provide.
So how do I provide information.
Either I provide information through income statement or balance sheet or I provide information through
the additional notes.
So I am not putting it here but I will put it here so that shareholders that they do not go to the warehouse
and start looking for the inventories that are the inventories you say one million dollars.
I don't see it.
I put it in disclosure.
No that don't go to the White House.
There is nothing left there.
So usually fire is a non adjusting event but but that is one backed if that is some event which may
be a non adjusting event.
Now that is an exception remember not what I'm going to tell you is an exception is an exception.
And you should remember because sometimes they try to check you with exceptions.
I see that an event maybe not adjusting by nature.
Such as fire.
But if it is so significant.
That it creates
doubts on the growing concerns darkness going concern.
You remember the safety of the business the business which is safe which is not going to go bankrupt.
Stuff like that that go to your survival is at stake.
But I say that there are doubts on the going concern which means that the survival of the business is
at stake then it must be reported as adjusting event
and change the emphasis and James the financial statements.
Now that is an exception you need to remember that it is possible that there is some event which by
nature by definition looks not adjusting but the size and scale of that event is so significant.
It is so much detail it is so big that you cannot just disclose it.
Now you should pray.
You should bake it and treat it as as adjusting event and go back and change the numbers because you
are your survival is at stake.
OK.
So financial statements me always because the underlying assumption of presenting the financial statement
is that the financial statements are presented as a going concern.
That is the first in the first line in your conceptual framework that the basic understanding is that
the business is safe.
Business is healthy and it is not facing any risk of bankruptcy or closing down.
So if any such event has happened so it means that those financial statements are not any more going
concern financial statements so you must go back and change the numbers.
So this is an exception here.
Just to given the examples of adjusting events include insolvency of a customer with a balancing act
the reporting date like you have a receivable of some particular customer and that customer becomes
a bad debt.
I mean I have to receive hundred thousand from Alpha Company Alpha Company goes bankrupt.
I cannot go in February and tell my shareholders that we have to receive hundred thousand from Alpha.
We know that Delphi has already gone bankrupt.
We know that Delphi is not going to pay any money.
Then why do I show it in my balance in my balance sheet as receivable.
Why do I tell my shareholders it is a symbol that would be not fair.
That is very unfair.
So Braddock's gone.
So that is an adjusting giving sale of inventory after the reporting period for less than it's getting
value at the end of reporting period.
Which means that on your balance sheet you have put something as hundred dollar but then that's the
minimum value like the load off cost tended not to be because you always show inventory at the lowest
cost lower of cost or anatomy and you have picked up a value of hundred dollar.
But then what happens is that in February you saw these goods for empty dollars so this is an adjusting
event.
You should go back to your financial statements on thirty first of December and make this hundred as
eighty and recorded as 80 evidence of an impediment of a non-current acid prior to the end of the reporting
period.
So if there is some impairment of a non Ambassador prior to the end of prior to the end of the reporting
period that you just got an evidence that the asset was in big before not now like Assad to Assad in
bed in November.
You got news in February or you just made a bit of my best in February and beauty veldt in February.
But actually it was big before so that is also an adjusting of it.
The outcome of a legal case which was provided for the reporting date.
This was my first example I told you that you created some provision for some legal case and then you
say discovery of fraud on editors which shows that the financial statements were incorrect.
Probably that is some mistake in the financial statements or maybe during the audit period while you're
doing the audit of the financial statements you identified that there was some fraud which on thirty
first of December you could not identify.
You only identified it in March but it belonged to the last year.
So this is also how to say you know you are adjusting event and usually the double entry for that the
double entry for fraud.
You would say dynamic administrative expenses and credit receivable usually because usually the frogs
on about the customer's receivables that you know some customer paid money.
Your procurement or I'm sorry your sales department or accounting department collected receivable but
they did not show it.
So in your books it looks like that the customer still owes the money so customer owes you twenty thousand
dollars.
Back in March when you tried to reconcile with the customer customers said that I owe you nothing.
I already have a view I already have paid the money to your accounting department to an accountant or
to your I don't know manager or to your sales department recovery department or whatever.
So now you cannot blame customer to give twenty thousand more because he has given you evidence of the
payment.
So customer balance you decrease you say to credit receivable and you charge it to your administrative
expenses and then you try to find out how to take a break from your employee tax as a second stage.
So these are some adjustments at some event.
Examples of off adjusting events.
Few more the financial statements should be amended to include the effect of the adjusting events should
be amended.
It means that you should be changing your financial statements.
You should be changing the number in the income statement increase or decrease in revenue one increase
or decrease in expenses.
And of course the corresponding changes in the balance sheet.
And this is likely to get the recognition of a loss in profit or loss.
So there is some loss which is going to happen in your being.
So these audio and adjusting events.
Let's see what are the examples of non adjusting events.
For example the first one we say announcement of a plan to discontinue an operation.
So in the month of January you decided that we are going to stop some activities or stop some operation
or stop some product.
This decision was taken in January.
It has got nothing to do with that.
It is not an adjusting event.
It is.
It is non adjusting event share transactions.
After the reporting period.
If you issue shares here major purchases and disposal of assets all they are they belong to the current
year 2020.
They have got nothing to do with the previous year.
Litigation commenced after the reporting period.
So before we discuss the litigation which started in the month of October.
But if litigation started in January and it finishes in February then it is a non adjusting event.
OK.
If the litigation started off and back because it has no evidence maybe it is a ticket to the prior
obedient.
Maybe it is related to the property and you saw some goods here but the customer did not take you the
litigation customer took you litigation in January.
So on thirty first of December we have no evidence of about this litigation.
So that is a non adjusting event.
I mean the contract probably belongs to the previous year but if the litigation did not stopped then
you can not report it.
Then you take it as non adjusting of it and the acquisition off or disposal off a subsidiary after the
reporting period.
You got some subsidiary audio display some subsidiary.
These are examples and on.
Just to give it so what type of questions usually come in here.
I mean they will tell you some type of sales transaction you know events after that it will be again
that you saw some goods and the customer turned back or probably some bad that happened.
Probably some you know sell off some sale of some non investor.
This type of small condition they will create which will make it to market three marks adjustment and
exam during your consolidation question or some other question.
So it's not a very serious topic.
So I.
So these are some very typical examples.
So the non adjusting events the nature of the event and an estimate of the financial effect is disclosed.
You just disclose it into the financial statements.
And this assumes that the non adjusting event is material to the financial state so because they are
material.
So you put them into their financial statements and in as a as a disclosure note
no.
So this is all with this chapter.