Did you know that financial statements have to be changed if certain things happen before they are issued? (‘Authorised for issue’ to be precise.) These things are called ‘events after the reporting period’[i]. That means that although the statements are said to be for the period up to a certain date (usually the year ended 30 June), they can actually contain information about things that have happened up to the date they were issued.
This makes the date of issue pretty important doesn’t it?
If you are a reader of the statements, not a producer, then if the organisation has complied with the relevant Standard, the date will be disclosed[ii].
But as a reader there’s one other thing you should look for – perhaps the first thing you should look for. For despite the finality of a year end, and then the cut-off given by their date of issue, the standard setters recognise the possibility of somebody having the power to amend the statements after their issue. Luckily for you such a power has to be disclosed[iii].
Back to the all-important date of issue. If you are in some way responsible for the statements, then you’ll need to know how this date is calculated for your organisation – so that you can distinguish ‘events after the reporting period’ from all other events.
Unfortunately the standard setters have not defined ‘date when the financial statements are authorised for issue’, saying that it will ‘vary depending upon the management structure, statutory requirements and procedures followed in preparing and finalising the financial statements’[iv] [AASB 110, para 4]. However, the only two examples they give have a board and a body that has to approve them subsequently [paras 5 & 6]. And in both cases the authorisation ‘for issue’ is by the board.
This means that if you are a director then you need to be sure that, right up to the meeting when you say that the statements are fit to be issued, the organisation has been watching for these events and incorporating them in the statements.
And if you are the one preparing the statements, that you have a system for this watching.
So what are these events about which you have to be aware? They can be divided into five groups based on their effect on the financial statements:
- A deterioration in the finances of the organisation so bad that one of the two assumptions underlying the way the figures were derived[v], the assumption that the organisation will continue in operation for the foreseeable future (the going concern assumption), is no longer valid. In this case you will have to recast the financial statements without that assumption, and follow the disclosures required by AASB 101[vi].
- Events, both favourable and unfavourable, that give you better information about the situation at year end. One of the most common examples is errors in the statements. The amounts recognised in the financial statements have to be adjusted[vii].
- Material events, both favourable and unfavourable, that relate to conditions arising after year end. For each category of such events, you will have to disclose (in the Notes) the nature of the event, and either an estimate of its financial effect or a statement that no such estimate can be made. Entering into significant commitments would be an example of such a material event[viii].
- Receiving information about conditions at year end that, although not affecting the amounts in the statements, do affect the disclosures. In this case the Notes will have to be amended[ix].
- ‘Material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern.’ The disclosures required by AASB 101 will have to be made in the Notes[x].
So, whether you are a producer or an approver of financial statements, the year end might be an end, but it is not the end of the story. Happy watching.
P.S. Business by The Book exists to provide accounting, audit and governance services, for no fee if necessary, to not-for-profits who are themselves serving those who are the cultural equivalents of the Bible’s fatherless, widows and aliens.
[i] Events after the Reporting Period AASB 110, www.aasb.gov.au.
[ii] AASB 110, paragraph 17.
[iii] AASB 110, paragraph 17. But the absence of such a power doesn’t, so if there is nothing said you will have to rely on the organisation having complied with the standard.
[iv] AASB 110, paragraph 4
[v] Framework for the Preparation and Presentation of Financial Statements, Framework, www.aasb.gov.au.
[vi] AASB 110, paragraph 14.
[vii] AASB 110, paragraphs 3, 8.
[viii] AASB 110, paragraph 21.
[ix] AASB 110, paragraph 19.
[x] AASB 110, paragraph 16(b).