FRS 21 (IAS 10) Events after the Balance Sheet Date
FRS 21 specifies the accounting treatment to be adopted (including the disclosures to be provided) by entities for events occurring between the balance sheet date and the date when the financial statements are authorised for issue.
The FRS is mandatory for accounting periods beginning on or after 1 January 2005 for all entities other than those applying the Financial Reporting Standard for Smaller Entities (FRSSE).
Apart from the exemption for entities applying the FRSSE, FRS 21 is identical to the IASB’s IAS 10 ‘Events after the Balance Sheet Date’ and therefore has the effect of implementing that IAS in the UK and Republic of Ireland.
FRS 21 sets out the recognition and measurement requirements for two types of event after the balance sheet date:
- Those that provide evidence of conditions that existed at the balance sheet date for which the entity shall adjust the amounts recognised in its financial statements or recognise items that were not previously recognised (adjusting events). For example, the settlement of a court case that confirms the entity had a present obligation at the balance sheet date.
- Those that are indicative of conditions that arose after the balance sheet date for which the entity does not adjust the amounts recognised in its financial statements (non-adjusting events). For example, a decline in market value of investments between the balance sheet date and the date when the financial statements are authorised for issue.
The FRS removes the requirement to report dividends proposed after the balance sheet date in the profit and loss account and instead requires disclosures in the notes to the financial statements. This accords with the now generally accepted view that dividends declared after the balance sheet date should not be reported liabilities. The Department of Trade and Industry has announced a parallel change in the law to take effect also in 2005.
The FRS sets out other disclosure requirements. These include disclosure of the date when the financial statements were authorised for issue and the disclosure of information received about conditions that existed at the balance sheet date. And if non-adjusting events after the balance sheet date are material and non-disclosure could influence the economic decisions of users the entity should disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made. The FRS provides a number of examples of non-adjusting events that would generally result in disclosure.
The FRS also requires that an entity shall not prepare its financial statements on a going concern basis if management determines after the balance sheet date that it intends to liquidate the entity or to cease trading or that it has no realistic alternative but to do so.
FRS 21 supersedes the existing UK accounting requirements in this area which were set out in SSAP 17 ‘Accounting for post balance sheet events'.