The document discusses events after the reporting period as defined in MFRS 110. It identifies two types of events - adjusting events that provide evidence of conditions existing at the end of the reporting period, and non-adjusting events that provide evidence of conditions that arose after the reporting period. Adjusting events require adjustments to the financial statements, while non-adjusting events require disclosure only. Examples of each type of event and the appropriate accounting treatment are provided.

1. MFRS 110
CHAPTER 5CHAPTER 5
EVENTS AFTER THEEVENTS AFTER THE
REPORTING PERIODREPORTING PERIOD

2. Definition
MFRS 110 defines events after the reporting date as ‘those events, bothMFRS 110 defines events after the reporting date as ‘those events, both
favourable and unfavourable, that occur between the end of thefavourable and unfavourable, that occur between the end of the
reporting period and the date when the financial statements arereporting period and the date when the financial statements are
authorised for issue’.authorised for issue’.
The standard has identified two types of events.The standard has identified two types of events.
They are:They are:
a.a. Those events that provide further evidence of conditions that existedThose events that provide further evidence of conditions that existed
at the end of the reporting period (adjusting events)- material event,at the end of the reporting period (adjusting events)- material event,
andand
b. Those that are indicative of conditions that arose after the end of theb. Those that are indicative of conditions that arose after the end of the
reporting period (non-adjusting events) non-material but significant.reporting period (non-adjusting events) non-material but significant.

3. Date When The Financial Statements Are
Authorised For Issue
The date on which the financial statements areThe date on which the financial statements are authorisedauthorised forfor
issue depends on the management structure, statutoryissue depends on the management structure, statutory
requirements and procedures followed by each entity in preparingrequirements and procedures followed by each entity in preparing
and finalizing the financial statements.and finalizing the financial statements.

4. ExampleExample
 Company A’s draft financial statements for the yearCompany A’s draft financial statements for the year
ended 31 December 2005 was completed on 28/2/2006.ended 31 December 2005 was completed on 28/2/2006.
The board of directors reviewed the financial statementsThe board of directors reviewed the financial statements
on 20/3/2006 andon 20/3/2006 and authorizedauthorized them for issue. Companythem for issue. Company
AA releasedreleased its profits and other selected financialits profits and other selected financial
information to the public on 21/3/2006.information to the public on 21/3/2006.
 However, the financial statements were only madeHowever, the financial statements were only made
available to the shareholders 30/3/2006. Theavailable to the shareholders 30/3/2006. The
shareholders approved the financial statements at theshareholders approved the financial statements at the
annual meeting on 10/5/2006.annual meeting on 10/5/2006.
 The post reporting period is between the year-end date,The post reporting period is between the year-end date,
31 December 2006 and 20/3/2006, the31 December 2006 and 20/3/2006, the date thedate the
directors authorizeddirectors authorized the financial statements.the financial statements.

5. Adjusting Events
 Adjusting events affect the financial position and performance
measurement of the entity even though they occurred between the
reporting date and the date the financial statements were
authorized for issue. Are the events that provide evidence of
conditions which existed at the end of reporting period.
 The accounting treatment is to adjust the elements of financial
statements affected by these events.
 Measurement of bad and doubtful debtsMeasurement of bad and doubtful debts
 Determining the net realizable value of inventoryDetermining the net realizable value of inventory
 Court caseCourt case
 Impairment of assetsImpairment of assets
 Cost of assets purchased or proceeds from disposal of assetsCost of assets purchased or proceeds from disposal of assets
 Profit sharing or bonusProfit sharing or bonus
 FraudFraud

6. Measurement of Bad andMeasurement of Bad and
Doubtful DebtsDoubtful Debts
 The entity normally provides for doubtfulThe entity normally provides for doubtful
debts from the past experience. Eventsdebts from the past experience. Events
after the reporting period may indicateafter the reporting period may indicate
that the amount has to be adjusted. Thethat the amount has to be adjusted. The
bankruptcy of a customer after thebankruptcy of a customer after the
reporting period gives further evidence ofreporting period gives further evidence of
the loss already existing on the reportingthe loss already existing on the reporting
period on a trade receivable. Therefore,period on a trade receivable. Therefore,
the entity needs to adjust the carryingthe entity needs to adjust the carrying
amount of the trade receivable.amount of the trade receivable.

7. Example 1Example 1
 The entity makes a provision for doubtfulThe entity makes a provision for doubtful
debts of 10% on all its trade receivables.debts of 10% on all its trade receivables.
After the end of the financial year, aAfter the end of the financial year, a
customer who owed the entity RM2millioncustomer who owed the entity RM2million
was declared a bankrupt.was declared a bankrupt.
 Accounting treatment?Accounting treatment?

8. AnswerAnswer
 At the reporting period the customer mayAt the reporting period the customer may
have been solvent but events after thathave been solvent but events after that
date indicate that the estimated provisiondate indicate that the estimated provision
has to revised. The 10% provision on thehas to revised. The 10% provision on the
debts has to revised. If the entitydebts has to revised. If the entity
determines that the customer would notdetermines that the customer would not
be able to pay any amount, then thebe able to pay any amount, then the fullfull
amount of the debt has to be written off.amount of the debt has to be written off.
The additional loss of RM1.8 million has toThe additional loss of RM1.8 million has to
recognised. It is an adjusting event.recognised. It is an adjusting event.

9. Determining the net realisableDetermining the net realisable
value of inventoryvalue of inventory
 At the end of the financial year, theAt the end of the financial year, the
carrying value of inventory is comparedcarrying value of inventory is compared
with its net realisable value. Net realisablewith its net realisable value. Net realisable
value is the estimated selling price lessvalue is the estimated selling price less
costs necessary to make the sale. Thecosts necessary to make the sale. The
measurement of net realisable value ismeasurement of net realisable value is
estimate. The sale of the inventory afterestimate. The sale of the inventory after
the reporting period gives further evidencethe reporting period gives further evidence
of the selling price of the inventory at theof the selling price of the inventory at the
reporting period.reporting period.

10. Example 2Example 2
 At the reporting period, the carrying valueAt the reporting period, the carrying value
of inventory of ROY was RM43,000 andof inventory of ROY was RM43,000 and
the net realizable value was RM52,000.the net realizable value was RM52,000.
The inventory was sold after the year-endThe inventory was sold after the year-end
but before the financial statements werebut before the financial statements were
authorized for issue, at RM 42,000.authorized for issue, at RM 42,000.
 Accounting treatment?Accounting treatment?

11. AnswerAnswer
 The actual sale price gives evidence thatThe actual sale price gives evidence that
the carrying value has to be adjusted tothe carrying value has to be adjusted to
RM42,000. The loss of RM1,000 isRM42,000. The loss of RM1,000 is
recognised in the current year.recognised in the current year.

12. Court caseCourt case
 There is a litigation, if the amount ofThere is a litigation, if the amount of
payment cannot be determined the entitypayment cannot be determined the entity
has to disclose the fact that there is ahas to disclose the fact that there is a
contingent liability.contingent liability.
 If the amount can be measured it has toIf the amount can be measured it has to
recognised and the measurement has torecognised and the measurement has to
be based on the best estimate.be based on the best estimate.

13. Example 3Example 3
 Client sue the entity for RM500,000 for pain andClient sue the entity for RM500,000 for pain and
agony caused by consuming the product sold byagony caused by consuming the product sold by
the entity. The entity made a provision for liabilitythe entity. The entity made a provision for liability
of RM100,000. The court case pending at theof RM100,000. The court case pending at the
end of the year. A month after the financial year-end of the year. A month after the financial year-
end but before the financial statementend but before the financial statement
authorized for issue, the case came to court andauthorized for issue, the case came to court and
the judgment was in favor of the client awardingthe judgment was in favor of the client awarding
RM400,000.RM400,000.

14. AnswerAnswer
 This is an adjusting event after theThis is an adjusting event after the
financial reporting period. The additionalfinancial reporting period. The additional
loss and a corresponding liability ofloss and a corresponding liability of
RM300,000 have to be recognized.RM300,000 have to be recognized.

15. Impairment of assetsImpairment of assets
 Assets are reviewed for impairment at theAssets are reviewed for impairment at the
reporting period. There could be indicationsreporting period. There could be indications
of impairment or of no impairment. If theof impairment or of no impairment. If the
entity obtains information after the reportingentity obtains information after the reporting
period indicating that an asset is impairedperiod indicating that an asset is impaired
at the reporting period, or that the amountat the reporting period, or that the amount
of a previously recognised impairment lossof a previously recognised impairment loss
for that asset needs to be adjusted, thenfor that asset needs to be adjusted, then
the entity is required to make thethe entity is required to make the
appropriate adjustments.appropriate adjustments.

16. Acquisition cost or proceeds onAcquisition cost or proceeds on
disposal of assetsdisposal of assets
 The determination after the reportingThe determination after the reporting
period of the cost of assets purchased, orperiod of the cost of assets purchased, or
the proceeds from the assets sold, beforethe proceeds from the assets sold, before
the reporting period are adjusting events.the reporting period are adjusting events.

17. Profit sharing or bonusProfit sharing or bonus
 If the entity had a present legal orIf the entity had a present legal or
constructive obligation at the reportingconstructive obligation at the reporting
period to make such payments as a resultperiod to make such payments as a result
of events before that date and the amountof events before that date and the amount
was determined after the reporting period,was determined after the reporting period,
the amount of profit sharing or bonus is tothe amount of profit sharing or bonus is to
be recognised for the year. The accountsbe recognised for the year. The accounts
have to be adjusted.have to be adjusted.

18. Non-Adjusting Events
Events that are indicative of conditions that arise after the reportingEvents that are indicative of conditions that arise after the reporting
period which no adjustments are made but the following disclosureperiod which no adjustments are made but the following disclosure
should be provided : (Do not affect the financial performance orshould be provided : (Do not affect the financial performance or
position)position)
 the nature of the event, andthe nature of the event, and
 the estimate of the financial effect, or a statement that such anthe estimate of the financial effect, or a statement that such an
estimate cannot be made.estimate cannot be made.
The accounting treatment is not to adjust the elements of financialThe accounting treatment is not to adjust the elements of financial
statements.statements.
Examples of non-adjusting events:Examples of non-adjusting events:
 Decline in the market value of investments after the reportingDecline in the market value of investments after the reporting
date,date,
 A major business combination after the reporting dateA major business combination after the reporting date
 Announcing a plan to discontinue an operation, disposing ofAnnouncing a plan to discontinue an operation, disposing of
assets etc.assets etc.
 Major purchases and disposals of assets or expropriation ofMajor purchases and disposals of assets or expropriation of
major assets by government.major assets by government.

19.  destruction of a major production plant by a fire after the balancedestruction of a major production plant by a fire after the balance
sheet date.sheet date.
 a major restructuringa major restructuring
 Major ordinary share transactionsMajor ordinary share transactions
 Abnormally large changes after the reporting period in asset pricesAbnormally large changes after the reporting period in asset prices
or foreign exchange ratesor foreign exchange rates
 Changes in tax rates or tax lawsChanges in tax rates or tax laws
 Entering into significant commitments or contingent liabilitiesEntering into significant commitments or contingent liabilities
 Commencing major litigation arising solely out of events thatCommencing major litigation arising solely out of events that
occurred after the reporting date.occurred after the reporting date.

20. In each of the above examples, an entity isIn each of the above examples, an entity is
required to disclose the followingrequired to disclose the following
information:information:
The nature of the eventsThe nature of the events
An estimate of its financial effects, or aAn estimate of its financial effects, or a
statement that such an estimate cannot bestatement that such an estimate cannot be
mademade

21. Example 1Example 1
 Super Bhd’s current year financialSuper Bhd’s current year financial
statements end 31 March 2005. On 16statements end 31 March 2005. On 16
April 2005, the board of directors agreedApril 2005, the board of directors agreed
to sell a subsidiary called Lemon Bhd. Theto sell a subsidiary called Lemon Bhd. The
directors authorized the financialdirectors authorized the financial
statements for issue on 30 August 2005.statements for issue on 30 August 2005.
 Identify and explain the nature of theIdentify and explain the nature of the
above event and the appropriateabove event and the appropriate
accounting treatment.accounting treatment.

22. AnswerAnswer
 The event on 16 April 2005 occurredThe event on 16 April 2005 occurred
between the reporting period and the datebetween the reporting period and the date
the financial statements were authorizedthe financial statements were authorized
for issue. The event was indicative offor issue. The event was indicative of
conditions that arouse after the reportingconditions that arouse after the reporting
period. Therefore, it is a non-adjustingperiod. Therefore, it is a non-adjusting
post-balance event of RM2.5 million.post-balance event of RM2.5 million.

23. Notes to Financial StatementsNotes to Financial Statements
 Subsequent to the reporting period, theSubsequent to the reporting period, the
company decided to sell Lemon Bhd for acompany decided to sell Lemon Bhd for a
cash consideration of RM2.5 milion.cash consideration of RM2.5 milion.

24. Dividends and Going Concern Status
 DividendsDividends
Proposed dividends are not present obligations and are not to beProposed dividends are not present obligations and are not to be
recognised as liabilities. A disclosure is required.recognised as liabilities. A disclosure is required.
 Going Concern StatusGoing Concern Status
Where the management determines after the reporting date that itWhere the management determines after the reporting date that it
intends to liquidate the entity or to cease trading, or that it has nointends to liquidate the entity or to cease trading, or that it has no
realistic alternative but to do so, then the going concern assumptionrealistic alternative but to do so, then the going concern assumption
used in preparing the financial statements may no longer beused in preparing the financial statements may no longer be
appropriate. Financial statements are to be preparedappropriate. Financial statements are to be prepared on aon a
liquidation basisliquidation basis..

26. DisclosureDisclosure
1.1. The date when the financial statementsThe date when the financial statements
were authorised for issue and who gavewere authorised for issue and who gave
that authorisation. If entity’s owners orthat authorisation. If entity’s owners or
others have the power to amend theothers have the power to amend the
financial statements after issue, the entityfinancial statements after issue, the entity
shall disclose that fact.shall disclose that fact.

27. DisclosureDisclosure
2. The information received after the2. The information received after the
reporting period about conditions thatreporting period about conditions that
existed at the reporting period. Thisexisted at the reporting period. This
information needs to be disclosed even if itsinformation needs to be disclosed even if its
does not affect the amounts recognised indoes not affect the amounts recognised in
the financial statements.the financial statements.