Financial Reporting: International Accounting Standards Board (Coursework Sample)

FINANCIAL REPORTING
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Financial Reporting
Introduction
Generally, International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) to make financial statements uniform, comparable, and transparent worldwide. An example of IFRS is the International Accounting Standard 10 (IAS 10), issued in 1978, re-issued in 1999 and 2003, and became effective on January 1, 2005. This report critically evaluates IAS 10 in terms of its rationale, accounting treatments, aspects, and potential implications for a non-compliance entity.
The Rationale for the Introduction of IAS 10
IAS 10 serves two main functions. First, it dictates how long a company must adjust its financial statements for events after the balance sheet date (Iasplus.com, 2021). Second, it defines the disclosures a firm should make when the financial statements are cleared for publication and the reporting period (Iasplus.com, 2021). In other words, IAS 10 determines when an entity can adjust its financial statements for events after the balance sheet date and outlines the relevant disclosures.
Since its first introduction, IAS 10 has undergone various amendments. For example, in December 2003, the board published a revised IAS 10 with the modified title, "Events after the Balance Sheet Date" (Hana and Patrik, 2017). This adjustment was part of the board's original plan for engineering projects. Other standards that have made minor consequential changes to IAS 10 are IFRS 13 Fair Value Measurement, IFRS 9 Financial Instruments, and Definition of Material (Hana and Patrik, 2017). The first and second amendments were issued in May 2011 and July 2014, respectively, while the third change was published in October 2018.
Accounting Treatments Afforded By IAS 10
The primary IAS 10’s objective is to prescribe events after the reporting period (Iasplus.com, 2021). It defines the accounting and disclosure obligations for transactions and events occurring between the balance sheet date and the (expected) time for adopting the financial statements (Iasplus.com, 2021). IAS 10 dictates when an event that occurs after the balance sheet date leads to an adjustment of the financial statements or when only information is needed in the financial statements. These events are referred to in IAS 10 as corrective or non-corrective events (Iasplus.com, 2021).
Overall, IAS 10 defines an entity’s corrective and non-corrective events. While the adjustment events offer information on conditions that existed on the balance sheet date, the non-adaptable events indicate conditions that occurred after the balance sheet date (Hana and Patrik, 2017). Therefore, a company will adjust the amounts reported in its financial statements to reflect adjustment events, but no adjustments will be required for charges reflecting unadjusted events. It should be noted that IAS 10 requires disclosures if the non-adaptable events are material after the reporting period. These material events include dividends that were resolved on that day after the balance sheet date; the going concern assumptions; Unknown or unclear events as of the balance sheet date; and Conditions occurring after the balance sheet date but did not exist before the reporting period (Iasplus.com, 2021).
Aspects of IAS 10 Which Require Entities to Exercise Judgment in Applying Its Provisions
Entities should exercise judgment in various aspects of the IAS 10. For example, companies should not recognize dividends approved after the balance sheet date as liabilities after the reporting date because these should be considered non-adjusting events (Kalyuha, 2019). Suppose the management indicates an intention to cease trading or liquidize the entity or is compelled to do so by circumstances. In that case, the concerned entity should avoid preparing its