IAS 10 — Adjusting and Non-Adjusting Events

IAS 10.3–4 — Adjusting vs non-adjusting: the fundamental test

The single test under IAS 10: did the underlying condition exist at the reporting date?

• Yes → adjusting event: the post-period information provides evidence of a condition that existed at year-end. Adjust the financial statements.
• No → non-adjusting event: the condition arose after the reporting date. Do not adjust; disclose in notes if material.

The test is about substance, not timing. A debtor's insolvency brewing at December year-end but announced in February is adjusting. A brand-new lawsuit filed in January is non-adjusting.

IAS 10.8 — Recognition: adjust for pre-existing conditions

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events that occur after the reporting period but before the financial statements are authorised for issue (IAS 10.5).

The adjustment refines or confirms an estimate made at the reporting date. It does not introduce new conditions — it clarifies what was already there. Common adjusting events include:

• Settlement of a court case that confirms an obligation existed at year-end
• Receipt of information about an asset's impairment that existed but was unmeasurable at year-end (e.g. customer bankruptcy announced in February for a debt already doubtful in December)
• Sale of inventory after the period at a price below year-end carrying amount, confirming net realisable value was already below cost

The critical date is the authorisation date — when those charged with governance approve the statements for issue (IAS 10.5), not the publication date or AGM date. Only events before authorisation can be adjusting or non-adjusting under IAS 10.

IAS 10.9 — Examples of adjusting events

IAS 10.9 lists five categories of adjusting events:

(a) Settlement of a court case after the period that confirms an existing obligation at year-end — the amount recognised is updated to match the settlement

(b) Information received after the period indicating an asset was impaired at year-end — for example, a customer's bankruptcy announced in January where receivables were already doubtful in December; or subsequent evidence that an asset's fair value at year-end was lower than estimated

(c) Sale of inventory after the period at a price below its year-end carrying amount — evidence that net realisable value was below cost at year-end

(d) Determination after the period of the cost of assets purchased or the proceeds from assets sold before year-end, where those amounts were estimated at the reporting date

(e) Discovery of fraud or errors showing the financial statements were incorrect at year-end

These categories share a common thread: the post-period event illuminates a condition that was already forming at the reporting date, even if the entity did not have all the information needed to measure it precisely.

IAS 10.12 — Dividends declared after the reporting date

If an entity declares or proposes dividends after the reporting date but before the financial statements are authorised for issue, those dividends are a non-adjusting event (IAS 10.12).

No obligation existed at year-end — the board's resolution or declaration is itself the obligating event. Therefore:

• The dividend is not recognised as a liability at the reporting date
• The dividend must be disclosed in notes if material (IAS 10.21)

This is one of the most common errors in practice: entities accrue proposed dividends as a current liability at year-end, overstating liabilities and understating equity. Under IAS 10.12, this is incorrect unless the dividend was formally declared before the reporting date.

Note disclosure example: "On 22 February 20X4, after the reporting date, the Board declared a dividend of €100,000 in respect of 20X3 earnings. No liability has been recognised at 31 December 20X3."

IAS 10.21 — Disclosure of non-adjusting events

For each material category of non-adjusting event after the reporting period, the entity must disclose (IAS 10.21):

(a) The nature of the event; and

(b) An estimate of the financial effect, or a statement that such an estimate cannot be made

Material non-adjusting events requiring disclosure include:

• Acquisitions or disposals of major subsidiaries or business units announced post-period
• Major restructuring plans announced after year-end
• Significant litigation commenced after the reporting date
• Large declines in asset fair values between year-end and the authorisation date
• Dividends declared after the reporting date (per IAS 10.12)

Going concern: if an event after the reporting period indicates the going concern assumption is no longer appropriate, the entity must not prepare financial statements on a going concern basis (IAS 10.14). This overrides the normal adjusting/non-adjusting classification — even a post-period event that technically arose after year-end can require fundamental restatement if it destroys the going concern premise.

IAS 10 — Practical Example

Alpha Manufacturing Ltd. closes its year on 31 December 20X3. Financial statements are authorised on 25 February 20X4.

Event 1 — Court ruling (20 January 20X4): A ruling confirms a €250,000 liability for an employment dispute. At 31 December, management had estimated a provision of €180,000.

This is an adjusting event — the dispute existed at year-end. The provision is updated:

Provision for legal claims in the 31 December 20X3 balance sheet: €250,000 (not €180,000).

Event 2 — Dividend declaration (22 February 20X4): The board declares a €100,000 dividend.

This is a non-adjusting event — no obligation existed on 31 December. Not recognised as a liability; disclosed in notes only.

IAS 10 — Common Pitfalls

• Confusing timing with substance: any post-year-end information is NOT automatically non-adjusting. If it illuminates a condition existing at year-end (e.g. customer insolvency announced in February for debts doubtful in December), it is adjusting (IAS 10.8).

• Failing to disclose material non-adjusting events: omitting disclosure of a significant post-year-end acquisition, litigation, or asset decline exposes financial statements to audit qualification. IAS 10.21 requires disclosure for all material events.

• Wrong authorisation date: the cut-off is when governance approves the statements for issue (IAS 10.5), not the publication date or AGM. Using the wrong date misclassifies events as "post-IAS 10" when they are still within scope.