Definition
Post-balance-sheet events, also known as adjusting events, are occurrences between the balance sheet date and the approval date of financial statements that provide further evidence of conditions that existed at the balance sheet date. For instance, if a property’s valuation indicates a permanent decrease in value, this decline must be accounted for in the financial statements. These events are significant enough to warrant adjustments because they reflect more accurately the financial condition of an entity at the balance sheet date.
Context and Importance
Such events are vital in accounting as they ensure the financial reports give a true and fair view of the company’s financial status at the balance sheet date. In the UK, adherence to presenting a true and fair view has been a long-standing tradition. However, standards such as Section 32 of the Financial Reporting Standard Applicable in the UK and Republic of Ireland and International Accounting Standard (IAS) 10 have introduced stricter definitions on what constitutes an adjusting event. This shift emphasizes the importance of these events in achieving transparency in financial reporting.
Related Terms
- Non-adjusting Events: These are events that indicate conditions that arose after the balance sheet date and do not affect the financial statements of the reported period.
- Financial Statements: Formal records of the financial activities and condition of a business, person, or other entity.
- True and Fair View: An accounting principle requiring financial statements to be accurate, complete and convey the real financial situation of the entity.
- IAS 10: An international accounting standard that governs the recognition and disclosure of events after the balance sheet date.
Humorous Insight
Imagine if your life had an “adjusting event” every time you found out something significant after a major life decision. Bought a car and then discovered it’s haunted? That’s an adjusting event! The financial world has these figured out, maybe it’s time for Life Standard 101!
Suggested Reading
- “Accounting for Growth: Stripping the Camouflage from Company Accounts” by Terry Smith – A comprehensive guide on how accounting figures can be inflated and how to spot such risks.
- “Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports” by Howard Schilit – A detailed look into how companies manipulate their financial reports and how to spot such practices.
In conclusion, understanding post-balance-sheet events is crucial for anyone involved in financial reporting or investment, ensuring that all financial decisions are based on the most accurate and recent information. Trust me, in accounting, as in life, surprises are rarely a good thing!
