Ways to Deal with Subsequent Events After the Financial Reporting Period Under IFRS
- Nhung Nguyen
- Aug 29
- 9 min read
Introduction
Financial statements are prepared based on information available up to a specific reporting date. However, significant events may occur between the end of the reporting period and the date when the financial statements are authorised for issue.
These events are known as subsequent events or events after the reporting period.
Under IAS 10 – Events after the Reporting Period, entities must assess whether events occurring after the reporting period provide evidence of conditions that already existed at the reporting date or instead represent conditions that arose after that date.
This distinction is critical because it determines whether an entity should adjust its financial statements, merely disclose the event, or take no action.
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1. What Are Subsequent Events Under IFRS?
IAS 10 defines events after the reporting period as:
Events, both favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.
The period can therefore be illustrated as:
Reporting date → Subsequent events → Authorisation date → Financial statements issued
For example, assume a company has a financial year ending on 31 December 2026 and its financial statements are authorised for issue on 20 March 2027.
Any relevant event occurring between 1 January 2027 and 20 March 2027 must be assessed under IAS 10.
Importantly, the assessment does not generally extend to events occurring after the financial statements have been authorised for issue.
2. The Two Categories of Subsequent Events
IAS 10 divides subsequent events into two major categories:
Category | Treatment |
Adjusting events | Adjust amounts recognised in the financial statements |
Non-adjusting events | Do not adjust recognised amounts, but material events may require disclosure |
The fundamental question is:
Did the event provide evidence of a condition that already existed at the reporting date?
Yes → Adjusting event
No → Non-adjusting event
This distinction is at the heart of IAS 10.
3. Adjusting Events
An adjusting event provides additional evidence about conditions that existed at the end of the reporting period.
The financial statements should therefore be adjusted to reflect the consequences of the event.
Example 1: Customer Bankruptcy
Suppose a customer owes a company £500,000 at 31 December 2026.
On 15 February 2027, the customer goes bankrupt.
If the bankruptcy confirms that the customer was already experiencing serious financial difficulties at 31 December 2026, the bankruptcy may provide evidence about the recoverability of the receivable at the reporting date.
The company should therefore reassess its expected credit loss and potentially recognise an additional impairment.
Accounting treatment:
Adjust the 2026 financial statements.
4. Example of an Adjusting Event: Settlement of a Court Case
Suppose a company is involved in litigation at 31 December 2026.
At that date, management estimates that the company may have to pay £2 million.
In February 2027, the court determines that the company must pay £3 million.
If the court settlement confirms the company's obligation arising from circumstances existing at 31 December 2026, the subsequent settlement provides additional evidence concerning the liability.
The company should therefore adjust the financial statements.
Accounting treatment:
Recognise or adjust the provision to reflect the best estimate supported by the settlement.
5. Other Common Adjusting Events
Other examples can include:
Inventory valuation
The subsequent sale of inventory may provide evidence about its net realisable value at the reporting date.
If inventory was already impaired at year-end, the financial statements should be adjusted.
Errors discovered after year-end
If an accounting error relating to transactions existing before year-end is discovered before authorisation, the financial statements may need to be corrected.
Determination of bonuses
If an employee bonus obligation existed at the reporting date and the amount is determined after year-end, the entity may need to recognise or adjust the liability.
Fraud discovered after year-end
Fraud involving transactions or balances existing before the reporting date may provide evidence requiring adjustment.
6. Non-Adjusting Events
A non-adjusting event indicates conditions that arose after the reporting period.
The financial statements are generally not adjusted for these events.
However, if the event is material, the entity must disclose:
The nature of the event; and
An estimate of its financial effect, or a statement that such an estimate cannot be made.
7. Example of a Non-Adjusting Event: Fire After Year-End
Assume a company's warehouse is destroyed by fire on 10 January 2027.
The company's reporting date is 31 December 2026.
If the fire occurred after year-end and the conditions causing the fire did not exist at 31 December, it is generally a non-adjusting event.
The company would not reduce the 31 December 2026 inventory balance because of the January fire.
However, if the loss is material, the company should disclose the event in the notes.
Accounting treatment:
No adjustment to the 2026 financial statements.
Material disclosure required.
8. Example: Acquisition After the Reporting Date
Suppose a company acquires another business on 20 January 2027.
The acquisition did not exist at 31 December 2026.
Therefore, it is generally a non-adjusting event.
However, if the acquisition is material, the company should disclose relevant information, such as:
Nature of the acquisition
Date of acquisition
Description of the acquired business
Consideration transferred
Significant financial effects, where required and practicable
9. Dividends Declared After the Reporting Period
Dividends are another important IAS 10 issue.
Suppose an entity's board declares dividends after the reporting period but before the financial statements are authorised for issue.
Under IAS 10, the entity does not recognise the dividends as a liability at the end of the reporting period because no present obligation existed at that date.
Instead, the dividends are disclosed in accordance with the applicable IFRS requirements.
Example
Reporting date: 31 December 2026
Dividend declared: 15 February 2027
Authorisation date: 20 March 2027
The dividend is not recognised as a liability at 31 December 2026.
10. Going Concern: A Particularly Important Area
One of the most significant subsequent-event considerations relates to going concern.
IAS 10 requires management to consider whether subsequent events affect the entity's ability to continue as a going concern.
If management determines after the reporting period that it intends to liquidate the entity or cease trading, or that there is no realistic alternative, the financial statements should not be prepared on a going-concern basis.
This is more significant than simply making a note disclosure.
Example
A company suffers severe financial difficulties after year-end and, before the financial statements are authorised, its directors decide to liquidate the business.
The financial statements may need to be prepared on a basis other than going concern.
11. How to Assess a Subsequent Event
A practical IFRS process can be structured into six steps.
Step 1 — Identify the event
Determine exactly what happened after the reporting date.
Examples include:
Bankruptcy
Litigation settlement
Acquisition
Fire
Flood
Major share-price movement
Restructuring
Dividend declaration
New financing
Government action
Step 2 — Establish the relevant dates
Determine:
Reporting date → Date event occurred → Date financial statements were authorised
This helps determine whether IAS 10 applies.
Step 3 — Ask whether the condition existed at year-end
This is the most important judgement.
Ask:
"Does this event provide evidence about a condition that already existed at the reporting date?"
If yes, it is likely an adjusting event.
If the underlying condition arose after year-end, it is likely a non-adjusting event.
Step 4 — Assess materiality
Even if an event is non-adjusting, it may require disclosure if it is material.
Materiality should be assessed both:
Quantitatively, and
Qualitatively.
An event can be material because of its nature even if its monetary amount is relatively small.
Step 5 — Determine the accounting treatment
The conclusion will generally be:
Adjusting event
Adjust the financial statements.
Non-adjusting event
Do not adjust the financial statements.
But if material:
Disclose the nature and estimated financial effect.
Step 6 — Document management's judgement
Entities should maintain appropriate documentation explaining:
What happened
When it happened
What condition existed at year-end
Evidence considered
Whether the event is adjusting or non-adjusting
Materiality assessment
Accounting treatment
Disclosure requirements
This documentation can be particularly important during the external audit.
12. A Practical Decision Tree
The following decision framework is useful:
Event occurs after reporting date
↓
Was it before the financial statements were authorised for issue?
No → Generally outside the IAS 10 subsequent-event assessment period.
Yes → Continue assessment.
↓
Does the event provide evidence of conditions existing at reporting date?
Yes → Adjusting event
No → Non-adjusting event
↓
For a non-adjusting event:
Is it material?
No → Usually no specific disclosure required
Yes → Disclose nature + estimated financial effect
13. Common Examples: Adjusting vs Non-Adjusting
Subsequent event | Typical classification | Treatment |
Customer bankruptcy confirms year-end credit problems | Adjusting | Adjust receivable/ECL |
Court settlement confirms year-end obligation | Adjusting | Adjust provision |
Sale of inventory provides evidence of year-end NRV | Adjusting | Adjust inventory |
Discovery of accounting error existing at year-end | Adjusting | Correct financial statements |
Fire destroying factory after year-end | Non-adjusting | Disclose if material |
Acquisition of another company after year-end | Non-adjusting | Disclose if material |
Major restructuring initiated after year-end | Usually non-adjusting | Disclose if material |
Major natural disaster after year-end | Non-adjusting | Disclose if material |
Dividend declared after reporting date | Non-adjusting | Do not recognise liability at reporting date |
Decision to liquidate affecting going concern | Special treatment | May require basis of preparation change |
14. Subsequent Events and IFRS Judgement
IAS 10 may appear straightforward, but classification often requires significant professional judgement.
The challenge is that an event occurring after year-end can provide evidence about a condition that existed before year-end.
Therefore, the date of the event alone does not determine the accounting treatment.
Example
A customer becomes insolvent in February.
The insolvency occurs after year-end.
But if the customer had already been experiencing severe financial difficulties in December, the February bankruptcy may simply provide additional evidence of a condition that existed at year-end.
Therefore:
Event date ≠ necessarily condition date.
This distinction is one of the most important concepts when applying IAS 10.
15. Interaction With Other IFRS Standards
IAS 10 does not operate in isolation.
Subsequent events can interact with several other IFRS standards.
IFRS 9 — Financial Instruments
Subsequent information may provide evidence relevant to expected credit losses.
IAS 2 — Inventories
Subsequent sales can provide evidence about the net realisable value of inventory at the reporting date.
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets
Subsequent settlements can provide additional evidence about obligations existing at year-end.
IFRS 3 — Business Combinations
Acquisitions occurring after the reporting date may require appropriate subsequent-event disclosure.
IAS 1 — Presentation of Financial Statements
Going-concern considerations can affect the basis on which financial statements are prepared.
16. The Role of Auditors
Subsequent events are also an important area of the audit process.
Auditors generally perform procedures to identify events occurring between the reporting date and the date of the auditor's report.
Typical procedures may include:
Reviewing board minutes
Reading management accounts
Reviewing significant transactions after year-end
Examining legal correspondence
Discussing developments with management
Reviewing post-year-end cash receipts and payments
Assessing significant acquisitions or disposals
Reviewing financing arrangements
Considering changes in litigation
Evaluating going-concern indicators
The objective is to determine whether the financial statements require adjustment or additional disclosure.
17. Common Mistakes in Applying IAS 10
Mistake 1: Treating every post-year-end event as non-adjusting
This is incorrect.
The key question is whether the event provides evidence about a condition existing at year-end.
Mistake 2: Treating every subsequent event as an adjusting event
This is also incorrect.
Events caused by conditions that arose after the reporting date are normally non-adjusting.
Mistake 3: Ignoring materiality
A non-adjusting event can still require disclosure if it is material.
Mistake 4: Recognising dividends declared after year-end as a liability
Dividends declared after the reporting date generally do not create a liability at the reporting date.
Mistake 5: Failing to consider going concern
Subsequent events can fundamentally change whether financial statements can be prepared on a going-concern basis.
18. Practical Checklist for Finance Teams
Before finalising financial statements, management should ask:
Reporting period
What is the reporting date?
When will the financial statements be authorised for issue?
Subsequent events
What significant events occurred after year-end?
Are there significant transactions?
Have customers become insolvent?
Have significant legal cases been settled?
Has inventory been sold at substantially different prices?
Have assets been damaged?
Have acquisitions or disposals occurred?
Have new financing arrangements been entered into?
Have dividends been declared?
Have restructuring decisions been made?
Accounting assessment
Did the underlying condition exist at year-end?
Is the event adjusting or non-adjusting?
Is the event material?
Is disclosure required?
Does the event affect going concern?
Documentation
Has the conclusion been documented?
Is sufficient supporting evidence available?
Has the issue been communicated to the auditors?
19. Key Takeaways
The treatment of subsequent events under IFRS can be summarised in one principle:
Adjust for events that provide evidence of conditions existing at the reporting date; disclose material events arising after the reporting date without adjusting the recognised amounts.
The most important steps are:
Identify the event.
Determine when it occurred.
Understand the underlying condition.
Determine whether that condition existed at year-end.
Classify the event as adjusting or non-adjusting.
Assess materiality.
Adjust or disclose accordingly.
Consider the impact on going concern.
Document the judgement and evidence.
Conclusion
Subsequent events are an essential part of high-quality IFRS financial reporting. They ensure that financial statements reflect relevant information available before they are authorised for issue while preserving the fundamental principle that financial statements are prepared based on conditions existing at the reporting date.
The key distinction is not simply when an event occurred, but what the event tells us about the financial position at the reporting date.
For finance professionals, accountants, auditors and CFA/ACCA/CPA candidates, mastering this distinction is essential:
Existing condition at reporting date → Adjust
New condition after reporting date → Usually do not adjust, but disclose if material
And whenever subsequent developments threaten the entity's ability to continue operating, going-concern considerations take centre stage.
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