International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

by International GAAP 2019 (pdf)

  The financial statements are authorised for issue on 18 February 2020 (date the board of directors, approves

  the financial statements for filing).

  Example 34.4 illustrates that events after the reporting period include all events up to

  the date when the financial statements are authorised for issue, even if those events

  occur after the public announcement of profit or of other selected financial information.

  [IAS 10.7]. Accordingly, the information in the financial statements might differ from the

  2946 Chapter 34

  equivalent information in a preliminary announcement. As governance structures vary

  by jurisdiction, entities may be allowed to organise their procedures differently and

  adjust the financial reporting process accordingly.

  An example of a company which is required to submit its financial statements to its

  shareholders for approval is LafargeHolcim Ltd, as illustrated in the following extract:

  Extract 34.1: LafargeHolcim Ltd (2017)

  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS [extract]

  41.

  Authorization of the financial statements for issuance

  The consolidated financial statements were authorized for issuance by the Board of Directors of LafargeHolcim Ltd

  on March 1, 2018 and are subject to shareholder approval at the annual general meeting of shareholders scheduled

  for May 8, 2018.

  As discussed above, an entity may be required to issue its financial statements to a

  supervisory board (made up solely of non-executives) for approval. For such

  instances, the phrase ‘made up solely of non-executives’ is not defined by the

  standard, although it contemplates that a supervisory board may include

  representatives of employees and other outside interests. However, it seems to draw

  a distinction between those responsible for the executive management of an entity

  (and the preparation of its financial statements) and those in a position of high-level

  oversight (including reviewing and approving the financial statements). This situation

  seems to describe the typical two-tier board system seen in some jurisdictions (for

  example, Germany). An example of a company with this structure is Bayer AG, as

  illustrated in the following extract.

  Extract 34.2: Bayer AG (2016)

  Combined Management Report [extract]

  4.

  Corporate Governance Report [extract]

  4.1

  Declaration by Corporate Management pursuant to Section 289a and Section 315, Paragraph 5, of the

  German Commercial Code [extract]

  Supervisory Board: oversight and control functions

  The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under the German

  Codetermination Act, half the Supervisory Board’s members are elected by the stockholders, and half by the

  company’s employees. The Supervisory Board is directly involved in decisions on matters of fundamental importance

  to the company, regularly conferring with the Board of Management on the company’s strategic alignment and the

  implementation status of the business strategy.

  The Chairman of the Supervisory Board coordinates its work and presides over the meetings. Through regular

  discussions with the Board of Management, the Supervisory Board is kept constantly informed of business policy,

  corporate planning and strategy. The Supervisory Board approves the annual budget and financial framework. It also

  approves the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group along

  with the combined management report, taking into account the reports by the auditor.

  Events after the reporting period 2947

  2.1.1.A

  Re-issuing (dual dating) financial statements

  IFRSs do not address whether and how an entity may amend its financial statements

  after they have been authorised for issue. Generally, such matters are dealt with in local

  laws or regulations.

  If an entity re-issues financial statements (whether to correct an error or to include

  events that occurred after the financial statements were originally authorised for issue),

  there is a new date of authorisation for issue. The financial statements should then

  appropriately reflect all adjusting events, by updating the amounts recognised in the

  financial statements, and non-adjusting events, through additional disclosure, up to the

  new date of authorisation for issue.

  However, in certain circumstances, the re-issuing of previously issued financial

  statements is required by local regulators particularly for inclusion in public offering

  and similar documents. Consequently, in November 2012, the Interpretations

  Committee was asked to clarify the accounting implications of applying IAS 10

  when previously issued financial statements are re-issued in connection with an

  offering document.2

  In May 2013, the Interpretations Committee responded that:

  • the scope of IAS 10 is the accounting for, and disclosure of, events after the

  reporting period and that the objective of this Standard is to prescribe:

  (a) when an entity should adjust its financial statements for events after the

  reporting period; and

  (b) the disclosures that an entity should give about the date when the

  financial statements were authorised for issue and about events after the

  reporting period;

  • financial statements prepared in accordance with IAS 10 should reflect all

  adjusting and non-adjusting events up to the date that the financial statements

  were authorised for issue; and

  • IAS 10 does not address the presentation of re-issued financial statements in an

  offering document when the originally issued financial statements have not been

  withdrawn, but the re-issued financial statements are provided either as

  supplementary information or a re-presentation of the original financial

  statements in an offering document in accordance with regulatory requirements.

  The Interpretations Committee decided not to add this issue to its agenda on the basis

  of the above and because the issue arises in multiple jurisdictions, each with particular

  securities laws and regulations which may dictate the form for re-presentations of

  financial statements.3

  2.1.2 Adjusting

  events

  Adjusting events are ‘those that provide evidence of conditions that existed at the end

  of the reporting period.’ [IAS 10.3(a)].

  2948 Chapter 34

  Examples of adjusting events are as follows:

  (a) the settlement after the reporting period of a court case that confirms that the

  entity had a present obligation at the end of the reporting period. In this situation,

  an entity adjusts any previously recognised provision related to this court case in

  accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets

  – or recognises a new provision. Mere disclosure of a contingent liability is not

  sufficient because the settlement provides additional evidence of conditions that

  existed at the end of the reporting period that would give rise to a provision in

  accordance with IAS 37 (see Chapter 27 at 3.1.1 and 3.2.1);

  (b) the receipt of information after the reporting period indicating that an asset was

  impaired at the end of the reporting period, or that the amount of a previously
r />   recognised impairment loss for that asset needs to be adjusted. For example:

  (i) the bankruptcy of a customer that occurs after the reporting period usually

  confirms that the customer was credit-impaired at the end of the reporting

  period (this is discussed further at 3.3 below); and

  (ii) the sale of inventories after the reporting period may give evidence about

  their net realisable value at the end of the reporting period;

  (c) the determination after the reporting period of the cost of assets purchased, or the

  proceeds from assets sold, before the end of the reporting period;

  (d) the determination after the reporting period of the amount of profit-sharing or

  bonus payments, if the entity had a present legal or constructive obligation at the

  end of the reporting period to make such payments as a result of events before

  that date; and

  (e) the discovery of fraud or errors that show that the financial statements are

  incorrect (see 3.5 below). [IAS 10.9].

  In addition, IFRIC 23 – Uncertainty over Income Tax Treatments – requires entities to

  apply IAS 10 to determine whether changes in facts and circumstances or new

  information after the reporting period gives rise to an adjusting or non-adjusting event

  for reassessing a judgement or estimate of an uncertain tax position. [IFRIC 23.14]. An

  event would be considered adjusting if the change in facts and circumstances or new

  information after the reporting period provided evidence of conditions that existed at

  the end of the reporting period (see 3.6 below).

  IAS 33 – Earnings per Share – is another standard that requires an adjustment for

  certain transactions after the reporting period. IAS 33 requires an adjustment to

  earnings per share for certain share transactions after the reporting period (such as

  bonus issues, share splits or share consolidations as discussed in Chapter 33 at 4.5) even

  though the transactions themselves are non-adjusting events (see 2.1.3 below). [IAS 10.22].

  2.1.3 Non-adjusting

  events

  The standard states that non-adjusting events are ‘those that are indicative of conditions

  that arose after the reporting period’. [IAS 10.3(b)].

  As examples of non-adjusting events, the standard gives the following events after the

  reporting period:

  Events after the reporting period 2949

  (a) a major business combination (IFRS 3 – Business Combinations – requires specific

  disclosures in such cases, see Chapter 9 at 16.1.2) or disposing of a major subsidiary;

  (b) announcing a plan to discontinue an operation;

  (c) major purchases of assets, classification of assets as held for sale in accordance

  with IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations,

  other disposals of assets, or expropriation of major assets by government

  (see Chapter 4 at 5.1 for certain disclosures that are required to be made);

  (d) the destruction of a major production plant by a fire;

  (e) announcing, or commencing the implementation of, a major restructuring

  (discussed in Chapter 27 at 6.1);

  (f) major ordinary share transactions and potential ordinary share transactions

  (although as noted at 2.1.2 above, some transactions in ordinary shares are

  adjusting events for the purposes of computing earnings per share);

  (g) abnormally large changes in asset prices or foreign exchange rates;4

  (h) changes in tax rates or the enactment or announcement of tax laws that

  significantly affect current and deferred tax assets and liabilities (discussed in

  Chapter 29 at 5.1 and 8.1);

  (i)

  entry into significant commitments or contingent liabilities, for example, by issuing

  significant guarantees;

  (j) start of major litigation arising solely out of events that occurred after the

  reporting period;

  (k) a decline in fair value of investments; and

  (l) a declaration of dividends to holders of equity instruments (as defined in IAS 32 –

  Financial Instruments: Presentation – discussed in Chapter 43 at 8). [IAS 10.11, 12, 22].

  The reference in (a) and (c) above to asset disposals as examples of non-adjusting events

  is not quite the whole story as these may indicate an impairment of assets, which may

  be an adjusting event. In addition, (b) and (e) above regarding announcements of plans

  to discontinue an operation or to restructure a business, respectively, may also lead to

  an impairment charge (see Chapter 20 at 5.1).

  Information provided under (i) above, will be in addition to the disclosure of

  commitments that exist at the reporting date which other standards require. For

  example, IAS 16 – Property, Plant and Equipment – and IAS 38 – Intangible Assets –

  require commitments for the acquisition of property, plant and equipment and

  intangible assets to be disclosed (see Chapter 18 at 8.1 and Chapter 17 at 10.1). IAS 17 –

  Leases – requires lessees and lessors to disclose operating lease payments (see

  Chapter 23 at 9.2.2 and 9.3.2). IFRS 16 – Leases – require a lessee to disclose the

  amount of its lease commitments for short-term leases if the portfolio of short-term

  leases to which it is committed at the end of the reporting period is dissimilar to the

  portfolio of short-term leases for which current period short-term lease expense

  disclosure was provided (see Chapter 24 at 5.8.2).

  For declines in fair value of investments, as in (k) above, the standard notes that the

  decline in fair value does not normally relate to the condition of the investments at the

  2950 Chapter 34

  end of the reporting period, but reflects circumstances that arose subsequently.

  Therefore, in those circumstances the amounts recognised in financial statements for

  the investments are not adjusted. Similarly, the standard states that an entity does not

  update the amounts disclosed for the investments as at the end of the reporting period,

  although it may need to give additional disclosure, if material, as discussed at 2.3 below.

  [IAS 10.11].

  However, the assertion that a decline in fair value of investments does not normally

  relate to conditions at the end of the reporting period is similar wording to that used for

  bankruptcy and the sale of inventories (see 2.1.2(b) above). Therefore, it requires an

  assessment of the circumstances in order to determine which conditions actually

  existed at the end of the reporting period – although this can be difficult in practice,

  particularly when fraud is involved (see 3.5 below).

  In respect of dividend declarations, as in (l) above, dividends are only recognised as a

  liability if declared on or by the end of the reporting period. If an entity declares

  dividends to holders of equity instruments (as defined in IAS 32) after the reporting

  period, the entity shall not recognise those dividends as a liability at the end of the

  reporting period. [IAS 10.13]. While an entity may have a past practice of paying

  dividends, such dividends are not declared and, therefore, not recognised as an

  obligation. [IAS 10.BC4].

  As a consequential amendment to IAS 10, the definition of ‘declared’ in this context was

  moved to IFRIC 17 – Distributions of Non-cash Assets to Owners. IFRIC 17 did not

  change the principle regarding the appropriate timing for the r
ecognition of dividends

  payable. [IFRIC 17.BC18-20]. It states that an entity recognises a liability to pay a dividend

  when the dividend is appropriately authorised and is no longer at the discretion of the

  entity, which is the date:

  • when declaration of the dividend, e.g. by management or the board of directors, is

  approved by the relevant authority, e.g. the shareholders, if the jurisdiction

  requires such approval; or

  • when the dividend is declared, e.g. by management or the board of directors, if the

  jurisdiction does not require further approval. [IFRIC 17.10].

  In many jurisdictions, the directors may keep discretion to cancel an interim dividend

  until such time as it is paid. In this case, the interim dividend is not declared (within the

  meaning described above), and is, therefore, not recognised until paid. Final dividends

  proposed by directors, in many jurisdictions, are only binding when approved by

  shareholders in general meeting or by the members passing a written resolution.

  Therefore, such a final dividend is only recognised as a liability when declared, i.e.

  approved by the shareholders at the annual general meeting or through the passing of a

  resolution by the members of an entity.

  IAS 10 contains a reminder that an entity discloses dividends, both proposed and

  declared after the reporting period but before the financial statements are authorised

  for issue, in the notes to the financial statements in accordance with IAS 1 –

  Presentation of Financial Statements (see Chapter 3 at 5.5). [IAS 10.13].

  Similar issues arise regarding the declaration of dividends by subsidiaries, associates

  and other equity investments. Although IAS 10 does not specifically address such

  Events after the reporting period 2951

  items, IFRS 9 – Financial Instruments – requires a shareholder to recognise

  dividends when the shareholder’s right to receive payment is established, it is

  probable that the economic benefits associated with the dividend will flow to the

  shareholder and the dividend can be measured reliably (see Chapter 46 at 2.5).

  [IFRS 9.5.7.1A]. Similarly, IAS 27 – Separate Financial Statements – also contains this