Accounting for Events Occurring After the Balance Sheet Date Under AS-4

AS 4 guides the treatment and disclosure requirements in the financial statements of events occurring after the balance sheet. Events occurring after the balance sheet date are those significant events (favourable as well unfavourable) that occur between the balance sheet date and the date on which financial statements are approved by the approving authority (i.e. board of directors in case of a company) of any entity.

Contingencies

Contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known or determined only on the occurrence, or non-occurrence, of one or more uncertain future events.

Events Occurring after the Balance Sheet Date

Events occurring after the balance sheet date are those significant events that occur between the balance sheet date and the date on which the financial statements, are approved by the Board of Directors in the case of a company, and by the corresponding approving authority in the case of any other entity.

For example, for the year ending on 31st March 2011, financial statement is finalized and accepted by the company in its AGM held on 4th September 2011. The events occurring between 1st April 2011 to 4th September 2011 are termed as events occurring after the balance sheet date.

Two types of events can be identified

  • those which provide further evidence of conditions that existed at the balance sheet date. For example a debtor declared insolvent and estate unable to pay full amount against whom provision for doubtful debt was created.
  • those which are indicative of conditions that arose subsequent to the balance sheet date. An event which ceases the enterprise from being going concern.

Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. For instance, an adjustment may be made for a loss on a trade receivable account which is confirmed by the insolvency of a customer which occurs after the balance sheet date.

Adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date if such events do not relate to conditions existing at the balance sheet date. An example is the decline in market value of investments between the balance sheet date and the date on which the financial statements are approved. Events occurring after the balance sheet date which do not affect the figures stated in the financial statements would not normally require disclosure in the financial statements although they may be of such significance that they may require a disclosure in the report of the approving authority to enable users of financial statements to make proper evaluations and decisions.

Assets and liabilities should be adjusted for events occurring after the balance sheet date that indicate that the fundamental accounting assumption of going concern is not proper.

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