Events after the reporting date

What it means

Events after the reporting period are circumstances arising between the date to which the financial statements are prepared, usually 31 December, and the date they are finalised. The company must assess them, because they may change the picture of its position at year end.

There are two kinds. Events that confirm conditions already existing at the reporting date are reflected directly in the figures, such as the bankruptcy of a customer already struggling in December, or a judgment in a lawsuit begun before year end. An allowance, provision or other estimate is adjusted.

Events arising only after the reporting date, such as a fire in January, the sale of part of the business or a major acquisition, are not reflected in the figures. If significant, they are described in the notes to the financial statements so that readers know the situation has changed.

How it works in practice

When preparing the financial statements we always ask clients what has happened since the start of the year: payments by major customers, disputes, losses, new loans, ownership changes or sharp changes in orders. Much of this information is not yet in the books, and without asking we would not know about it.

For receivables, January and February receipts are the best evidence of collectability. If a customer has paid, no allowance is needed; if it has gone bankrupt, we create one as at 31 December as well.

For serious events, such as losing a key customer, we also assess the going concern assumption. If it is in doubt, the statements are prepared differently and the information must be clearly disclosed in the notes.

What to watch out for

Events after the reporting period are assessed up to the date the statements are finalised. The later they are prepared, the more information has to be considered. In an audit the auditor asks about events right up to the date of the report.

Concealing a significant event, such as a large loss in January, from a bank or investor relying on the financial statements can have legal consequences. Disclosure in the notes also protects the directors themselves.