This document summarizes Accounting Standard 4 regarding contingencies and events occurring after the balance sheet date. It outlines that AS-4 does not apply to certain insurance and retirement obligations or long-term lease commitments. It defines contingencies as uncertain future events whose outcomes depend on circumstances. Contingent losses should be provided for if likely, and disclosed if evidence is insufficient for estimation but not remote. Events after the balance sheet date are adjusted for if they provide evidence of prior conditions, and disclosed if they materially affect financial position.

1. ACCOUNTING STANDARD - 4 CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEET DATE

2. Applicability of Accounting Standard AS-4 DEALS WITH – CONTINGENCIES EVENTS OCCURING AFTER BALANCE SHEET DATE AS-4 DOES NOT APPLY IN FOLLOWING CASES – Liabilities of life assurance and general life insurance enterprises Obligations under retirement benefit plans Commitments arising from long-term lease contracts

3. CONTINGENCIES 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. Result is not known on the date balance sheet Estimation of outcome of contingency is determined by management. The fact that an estimate involved-does not make it a contingency. (E.g. Depreciation not a contingency)

4. ACCOUNTING TREATMENT OF CONTINGENT LOSSES IF CONTINGENT LOSS LIKELY, PROVIDE FOR THE LOSS IN FINANCIAL STATEMENTS. ILLUSTRATION – A company has filed a legal suit against the debtor from whom Rs.15 lakhs is recoverable as on 31/3/04. The chances of recovery of legal suit are not good as per legal opinion. As per AS-4 company should make a provision for doubtful debts.

5. Third party counter claim to be adjusted IN CASE OF INSUFFICIENT EVIDENCE FOR ESTIMATION OF CONTINGENT LOSS, MAKE DISCLOSURE. IF CONTINGENT LOSS IS REMOTE, IGNORE IT. Discounting of Bills of Exchange

6. EVENTS OCCURING AFTER BALANCE SHEET DATE Events which occur between the balance sheet date and the date of approval of financial statements by competent authority. Two types of EVENTS:- Those which provide further evidence of conditions that existed at the balance sheet date. Those which are indicative of conditions that arose subsequent to the balance sheet date.

7. Accounting Treatment Adjustments are required if we get additional information which can materially affect the amounts relating to conditions existing at balance sheet date. (Insolvency confirmation after the balance sheet date) NO adjustment is required if the event does not relate to the conditions existing at the balance sheet date. (Decline in value of investments) Events which do not effect the figures of financial statements but can significantly influence decision making must be disclosed in report of approving authority. (Information on new projects etc.)

8. Contd….. Certain events taking place after the balance sheet date are reflected in financial statements because of statutory requirements. (Proposed dividend) Events that may indicate that the enterprise ceases to be a going concern requires a proper disclosure. ( Due to fire)

9. DISCLOSURE Disclosure is required only in respect of those events which materially affect the financial position. Disclosure of events in the report of approving authority should comprise of the following information:- Nature of the event An estimate of their financial effects or a statement that such estimates can not be made.

10. THANK YOU SOURCES: ACCOUNTING STANDARDS; D.S. RAWAT ACCOUNTING STANDARDS; S BHATTACHARYA ICMR TEXT BOOK WWW.ICAI.ORG