Most Dubai audit services make a lot of estimations in financial statements. Of course, they change depending on the circumstances and information that change and evolve.
The IAS 10 standard provides direction to company audit specialists how to handle events that happen after year end reporting date ( after financial reporting) and how the financial statements should be adjusted according to these events.
Comparing financial statements across industries and over time is easier when using a consistent approach, without sacrificing the necessity to maintain the relevance and faithful representation that are key to making them meaningful.
As you follow the standard, you will be guided through the treatment of both adjusting and non-adjusting events.
IAS 10 principles can assist you in clarifying your decision as to whether you are going to adjust your financial statements based on an event after year-end (and therefore create an adjusting event) or whether you will not alter your financial statements and only disclose the information in an addendum to the financial statements.
Basic Principles of IAS 10 : Events After The Reporting Period
Let us briefly examine how IAS 10 treats events after the reporting period.
Here are some terms to note:
The term after-reporting period refers to events that occur after the reporting period, whether favorable or unfavorable, between the reporting date and when the financial statements are approved for release.
These are events that are based on EXISTENCE at the reporting date. In this case, it makes no difference whether the fact was known or not at the reporting time.
Some are indicative of events that occur after the reporting date.
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How Audit Firms in Dubai Should Handle Altering or Not Altering Events in Financial Statements
There is an adjustment to the recognized amounts in the financial statements as a result of this event. To achieve this, audit specialists will need to make the necessary changes to the statements of financial position, profit and loss statement, and other comprehensive income statements, as well as the appropriate notes.
This type of adjustment does not affect the amounts reflected in the financial statements; however, it will be disclosed in the notes to the financial statements if it is material. The adjustment will not be disclosed if the event affects the going concern assumption.
Accordingly, any events occurring after the reporting date should be reviewed to determine whether the event occurred between the reporting date and the date of the financial statement approval.
Based on the above definitions and principles, Dubai auditing professionals would classify each event as either adjusting or non-adjusting. If adjusting, the company audit team would update the financial statements; if non adjusting, and the effects are material, the experts will disclose them in the notes. The following are examples of adjusting events:
- After the reporting date, an entity in Dubai settles a court case that confirms its obligations at the reporting date.
- Fraud or errors discovered during the reporting period
- Identifying the profit-sharing payments/bonuses payable after the reporting date if the entity had an obligation to do so at the time of reporting
There are indications, perhaps through press releases, that a material customer has declared bankruptcy after the reporting year-end despite the fact that they were insolvent and unable to pay their creditors before your reporting year-end date.
Here are a few non-adjusting events:
- Investment values decreased between the end of the reporting period and the date of authorization
- A business combination or acquisition made after the reporting date
- Fixed assets destroyed after the report date
- Announcement/start of a significant reorganization
- A lawsuit arising out of an event that occurred after the reporting period
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Several Other Principles for Consideration
According to IAS 10, events that occur after a reporting period affect an entity’s ability to continue as a going concern are considered. Also, there are some principles about how dividends should be treated.
After the reporting date, going concern assumptions should no longer be used for preparing financial statements. To make sure accounting experts prepare financial statements accordingly, if a given post-reporting period event takes place that has a major effect on a company in Dubai, UAE’s ability to carry on as a going concern, then it is considered an adjusting event.
Dividends Declared After The Reporting Date
Dividends that are declared after the date of the financial statement but before its approval are considered within the principles’ scope. There is no liability for the dividend declared after the financial statement reporting date in the financial statements for the reporting period. Non-adjusting events should still be disclosed in the notes for dividend amounts, per share amounts, and if any non-cash dividends are paid.
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Umapathy Anuruthan, is a Senior Auditor at the firm, holds a Business Management Degree and carries with him an experience of 6+ Years, having worked in two of the Big 4 audit firms. He has a ‘hands-on’ understanding of external audits and financial reporting and is well-known for his approach to ensuring the highest quality and accuracy in audits for clients of numerous industries.