The previous topics dealt mostly with the reasons for accounting standards, their concepts, how theyre

regulated and some of their limitations. Along with FRS 3 and FRS 18, we will now be discussing further accounting issues which are the subject of standards. FRS 3 introduced the idea of disclosure in the form of notes, the reason being is that in order for the financial statements to provide a true and fair view of the companys activities they must include all the information necessary for an understanding of the companys position. Yet, up until now, we have only dealt with those events that have occurred during the current accounting period. But what about activities that occur after the balance sheet date? Well, prudence would have us provide a provision for it, wouldnt it? The accruals would say if its affecting the position of the company at the balance sheet date, then a provision too should be provided.

E.g. suppose that at the 10th of January, the company decides to go into liquidation and the company is yet to publish its accounts for the year up to 31/12/2003. Would the company go ahead and publish its financial statements with any adjustments or disclosure? Please bear in mind that the accounts were initially prepared on the basis of the going concern concept. I believe that you got the idea now. Well, SSAP 17 says okay, any event that occurs after the b/s date is called a post balance sheet event, some of which may need to be disclosed without adjusting the balance sheet, while some may need to be disclosed whilst adjusting the balance sheet. Post Balance Sheet Events are those events, both favourable and unfavorable, which occur between the balance sheet date and the date on which the financial statements are approved by the board of directors. Well, now that we know what post balance sheet events are, we need to know when the accounts may need adjustments, or when disclosure in the form if notes is adequate enough. Those events, that may need adjustments, are referred to as Adjusting Events, and they are defined as: Adjusting Events are post balance sheet events which a) Provide additional evidence of conditions existing at the balance sheet date. b) They include events which because of statutory or conventional requirements are reflected in financial statements. Well, if there are adjusting events, then there must be non-adjusting events, right? Yes! Non-Adjusting Events are events which a) Arise after the b/s date and concern conditions which did NOT exist at that time. b) They do not result in changes in amounts in financial statements. c) Yet they may however, be of such *materiality that their disclosure is required by way of notes to ensure that financial statements are not misleading. *An example of the significance of the materiality concept.

Suppose for example a company decides to issue shares after the b/s date, i.e. in the next accounting period, whilst it is doing so, the accountants are still busy preparing thefinancial statements. Think with me, do we need to disclose the information? Well, yes! But subject to the following conditions 1) If they are material enough, which they are! 2) If they do not affect the amounts in the previous financial statement. Finally, a list of examples of Adjusting and Non-Adjusting Events: Adjusting Events:

1 Resolutions relating to proposed dividends and amounts appropriated to reserves 2 The effects of changes in taxation rates 3 The declaration, by subsidiaries or associated companies, of dividends relating to periods prior to the balance sheet date of the holding company. 4 The subsequent determination of the purchase price or of sale proceeds of assets purchased or sold before the year end. 5 The valuation of a property which provides evidence of a permanent diminution invalue 6 The receipt of a copy of the financial statements or other information in respect ofan unlisted company which provides evidence of a permanent diminution in thevalue of a long-term investment. 7 The receipt of proceeds of a sale or other evidence after the balance sheet dateconcerning the net realizable value of stock 8 The receipt of evidence that the previous estimate of accrued profit on a long termcontract was materially inaccurate 9 The renegotiation of amounts owing by debtors, or the insolvency of a debtor 10 Amounts received or receivable in respect of insurance claims which were in the course of negotiation at the balance sheet date. 11 The discovery of errors or frauds which show that the financial statements wereincorrect Non-Adjusting Events 1 Issue of Shares and debentures 2 Purchases and sales of fixed assets and investments 3 Losses of fixed assets or stocks as a result of a catastrophe such as fire or flood 4 Opening new trading activities or extending existing trade activities 5 Closing a significant part of the trading activities if this was not anticipate at the year end 6 Decline in the value of property and investments held as fixed assets, if it can be demonstrated that the decline occurred after the year end 7 Government action, such as nationalization 8 Strikes and other labor disputes