The Hindu Business Line : Events post balance-sheet date

Comprehending an entity’s financial statements is neither an art nor a science nowadays — it is a special skill that has to be developed. With differing recognition and measurement requirements and even more detailed disclosures, the effort takes time.

The attempt to globalise accounting standards continues with the efforts of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB).

Statement No 165

The FASB has issued Statement No 165 on Subsequent Events applicable for interim or annual financial periods ending after June 15, 2009. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance-sheet date but before financial statements are issued or are available to be issued.

The Statement covers the period after the balance-sheet date during which time the management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognise events or transactions occurring after the balance-sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance-sheet date.

This Statement should be applied to the accounting for and disclosure of subsequent events. This Statement does not apply to subsequent events or transactions that are within the scope of other applicable generally accepted accounting principles (GAAP) that provide different guidance on the accounting treatment for subsequent events or transactions.

This Statement would apply to both interim financial statements and annual financial statements. This Statement should not result in significant changes in the subsequent events that an entity reports — either through recognition or disclosure — in its financial statements.

This Statement introduces the concept of financial statements being available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented.

Differences

However, even after the issue of this Statement, the IASB and the FASB do not see eye-to-eye on some issues.

There are still some niggling issues in refinancing short-term obligations and curing violations of borrowing covenants. The requirement to disclose the date through which the entity has evaluated subsequent events is consistent with the guidance in IAS10.

IAS10 requires evaluation of subsequent events through the date on which the financial statements are authorised to be issued, while this Statement requires evaluation of subsequent events through the date that the financial statements are issued or are available to be issued.

It is apparent that the International Financial Reporting Standards (IFRS) would have to do with some customisation to suit local conditions. Recently, the IASB planned to make some amendments to its IAS 19 on Employee Benefits since not everyone was in agreement with the discount rate suggested by the Standard. In India, we do have an accounting standard for disclosing significant events that have occurred after the balance-sheet date which does not differ materially from the international ones. Adopting these standards should be easy.

(The author is a Hyderabad-based chartered accountant.)

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