Key Points
- Adjusting events provide evidence of conditions that existed at the balance sheet date and require the entity to update its recognised amounts.
- Non-adjusting events reflect conditions that arose after the balance sheet date and trigger disclosure only (no restatement of figures).
- IAS 10.17 requires the entity to disclose the date on which the financial statements were authorised for issue, because that date closes the window for subsequent events.
- Dividends declared after the reporting date but before authorisation are disclosed, not recognised as a liability, under IAS 10.12–13.
What is Events after the Reporting Period?
IAS 10.3 defines the relevant window: it starts the day after the reporting date and ends on the date the financial statements are authorised for issue. Everything that happens within that window must be evaluated. The standard splits events into two categories. Adjusting events (IAS 10.8) provide evidence about conditions that already existed at the reporting date. A court ruling in February that confirms a liability disputed at 31 December is adjusting. The entity changes the numbers. Non-adjusting events (IAS 10.10) reflect conditions that arose after the reporting date. A factory fire in January is non-adjusting. The entity discloses the nature of the event and an estimate of its financial effect (or states that no reliable estimate can be made) per IAS 10.21.
The auditor's responsibility under ISA 560.6 runs through two distinct periods. From the reporting date to the date of the auditor's report, ISA 560.7 requires active procedures (inquiry of management, reading minutes, reviewing subsequent interim financial information). From the date of the auditor's report to the date the financial statements are issued, ISA 560.10 limits the obligation to facts that come to the auditor's attention. The going concern assessment under ISA 570.15 often intersects here, because events in this window can confirm or contradict management's ability to continue as a going concern.
Worked example: Rossi Alimentari S.p.A.
Client: Italian food production company, FY2025, revenue €67M, IFRS reporter. The financial statements have a reporting date of 31 December 2025 and are authorised for issue on 28 March 2026.
Step 1 — Identify events in the window
Between 1 January and 28 March 2026, two events occur. First, on 18 January 2026, a court rules that Rossi is liable for €420,000 in a contamination claim filed by a distributor in October 2025. Second, on 5 March 2026, a fire at Rossi's Parma packaging facility causes €1,800,000 in damage and halts production for two weeks.
Step 2 — Classify each event
The court ruling on 18 January relates to a claim filed before the reporting date. The ruling provides evidence of a condition (the liability) that existed at 31 December 2025. This is an adjusting event under IAS 10.8. The fire on 5 March is a new condition that did not exist at year-end. This is a non-adjusting event under IAS 10.10.
Step 3 — Adjust the financial statements for the court ruling
At 31 December 2025, Rossi had recognised a provision of €300,000 for this claim based on legal counsel's best estimate. The court ruling confirms the liability at €420,000. Management increases the provision by €120,000 (debit legal expense, credit provision). The additional charge reduces pre-tax profit and increases the provision balance in the statement of financial position.
Step 4 — Disclose the fire as a non-adjusting event
IAS 10.21 requires disclosure of the nature of the event (fire at the Parma facility on 5 March 2026) and an estimate of its financial effect (€1,800,000 in asset damage, with €1,500,000 expected to be recovered under the property insurance policy, producing a net exposure of approximately €300,000). If no reliable estimate is possible, the entity states that fact.
Conclusion: the adjusting event increases the provision by €120,000 based on a court ruling that confirms a pre-existing liability, and the non-adjusting event is disclosed with a quantified financial effect and insurance offset, both defensible because they rest on external evidence obtained within the subsequent events window.
Why it matters in practice
Teams frequently stop their subsequent events procedures at the date of the auditor's report without documenting the gap between that date and the date the financial statements are authorised for issue. ISA 560.10–11 requires the auditor to take action if facts become known after the auditor's report date but before issuance. Firms that treat the auditor's report date as the hard cut-off leave a procedural gap that inspection teams identify when the two dates diverge by more than a few days.
The classification boundary between adjusting and non-adjusting events is often applied mechanically. A customer's insolvency in January may look like a non-adjusting event (new condition), but if the customer was already in financial difficulty at the reporting date, it is adjusting under IAS 10.9(b). ISA 560.7(a) requires the auditor to inquire whether management has identified all such events, and the inquiry must probe the underlying condition, not just the date of the visible event.
Adjusting events vs non-adjusting events
| Dimension | Adjusting event | Non-adjusting event |
|---|---|---|
| Definition | Provides evidence of conditions existing at the reporting date (IAS 10.8) | Indicates conditions that arose after the reporting date (IAS 10.10) |
| Effect on financial statements | Entity adjusts recognised amounts in the financial statements | No adjustment to recognised amounts; disclosure of nature and estimated financial effect (IAS 10.21) |
| Common examples | Settlement of a court case confirming a year-end liability, discovery of fraud that occurred before year-end | Major business combination after year-end, destruction of assets by fire or flood, announcement of a restructuring plan |
| Audit procedure | Verify the event against the year-end balance and test the adjustment | Verify the disclosure is complete and that the financial effect estimate is reasonable |
The distinction determines whether figures move. Misclassifying an adjusting event as non-adjusting understates liabilities (or overstates assets) in the financial statements, while misclassifying a non-adjusting event as adjusting introduces amounts that relate to a different period. On engagements with material litigation or significant post-year-end transactions, the auditor tests each event individually against the IAS 10.8 criteria rather than accepting management's blanket classification.
Related terms
Frequently asked questions
How do I document subsequent events procedures in the audit file?
Create a subsequent events working paper listing every procedure performed under ISA 560.7: inquiries of management, review of board minutes through to the auditor's report date, examination of interim financial data, and review of legal correspondence. For each event identified, record the classification (adjusting or non-adjusting), the basis for that classification, and the resulting adjustment or disclosure. ISA 560.9 requires this documentation to cover the full period up to the date of the auditor's report.
Does IAS 10 apply to interim financial statements?
IAS 34.16A(j) requires the entity to disclose events after the interim period that are significant but have not been reflected in the interim financial statements. The same adjusting/non-adjusting distinction applies. However, interim periods have shorter windows (from the interim date to the date the interim report is approved), and IAS 34 does not require the same level of disclosure as annual financial statements. The auditor performing a review under ISRE 2410 applies analogous subsequent events procedures.
What happens if a going concern doubt arises after the reporting date?
If management identifies events after the reporting date that cast significant doubt on the entity's ability to continue as a going concern, IAS 10.14–16 prohibits preparing the financial statements on a going concern basis if the events indicate the entity will not continue. If the doubt is less definitive but material, IAS 1.25 requires disclosure. The auditor evaluates the implications under ISA 570.15–16 and considers whether a modification to the opinion or an emphasis of matter paragraph is necessary under ISA 570.18.