VAS 23 - Events after balance sheet date

STANDARD 23
events after the balance sheet date
(Issued in pursuance of the Minister of Finance Decision No. 12/2005/QD-BTC
dated 15 February 2005)


GENERAL

01. The objective of this standard is to prescribe and provide guidelines for cases when an enterprise should adjust its financial statements, principles and method to adjust the financial statements for events after the balance sheet date and disclosures about the date when the financial statements were authorized for issue and about events after the balance sheets date.

If events occurring after the balance sheet date indicate that the going concern assumption is not appropriate the enterprise should not prepare its financial statements on a “going concern” basis.

02. This Standard should be applied in the accounting for, and disclosure of, events after the balance sheet date.

03. The following terms are used in this Standard with the meanings specified:

Events after the balance sheet date are those events, both favourable or unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Two types of events can be identified:

(a) Adjusting events after the balance sheet date: those events that provide evidence of conditions that existed at the balance sheet date.

(b) Non-Adjusting events after the balance sheet date: those events that are indicative of conditions that arose after the balance sheet date.

The date when the financial statements were authorized for issue is: The date when the enterprise’s Finance Director (or someone who is authorized by the Finance Director) signs on financial statements for distributing to external parties.

04. The process involved in authorising the financial statements for issue will vary depending upon the management structure, statutory requirements and procedures followed in preparing and finalising the financial statements.

05. Events after the balance sheet date include all events up to the date when the financial statements are authorised for issue.

CONTENT

Recognition and measurement


Adjusting events after the balance sheet date

06. An enterprise should adjust the amounts recognised in its financial statements to reflect adjusting events after the balance sheet date.

07. The following are examples of adjusting events after the balance sheet date that require an enterprise to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised:

(a) The resolution after the balance sheet date of a court case which, because it confirms that an enterprise already had a present obligation at the balance sheet date, requires the enterprise to adjust a provision already recognised, or to recognise a new provision or recognize new receivables or payables;

(b) The receipt of information after the balance sheet date indicating that an asset was impaired at the balance sheet date, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For example:

(i) the bankruptcy of a customer which occurs after the balance sheet date usually confirms that a loss already existed at the balance sheet date on a trade receivable account;

(ii)the sale of inventories after the balance sheet date may give evidence about their net realisable value at the balance sheet date;

(c) The determination after the balance sheet date of the cost of assets purchased, or the proceeds from assets sold before the balance sheet date;

(d) The discovery of fraud or errors that show that the financial statements were incorrect.

Non-adjusting events after the balance sheet date

08. An enterprise should not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the balance sheet date.

09. An example of a non-adjusting event after the balance sheet date is a decline in market value of investments such as capital contributions in join ventures and Investments in Associates between the balance sheet date and the date when the financial statements are authorised for issue. The fall in market value does not normally relate to the condition of the investments at the balance sheet date, but reflects circumstances that have arisen in the following period. An enterprise does not adjust the amounts recognised in its financial statements for the investments although it may need to give additional disclosure under paragraph 19.

Dividends

10. If dividends to holders of equity instruments are proposed or declared after the balance sheet date, an enterprise should not recognise those dividends as a liability at the balance sheet date.

11. If dividens are declared after the balance sheet date but before the financial statements are authorized for issue the dividends are not recognized as liability on the balance sheet but should be disclosed in the notes in accordance with VAS 21 “Presentations of financial statements”.

12. An enterprise should not prepare its financial statements on a going concern basis if management determines after the balance sheet date either that it intends to liquidate the enterprise or to cease trading, or that it has no realistic alternative but to do so.

13. Deterioration in operating results and financial position after the balance sheet date may indicate a need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the effect is so pervasive that this Standard requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting.

14. VAS 21 “Presentation of Financial Statements” specifies required disclosures if:

(a) the financial statements are not prepared on a going concern basis; or

(b) management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the enterprise's ability to continue as a going concern. The events or conditions requiring disclosure may arise after the balance sheet date.

Disclosure

Date of authorisation for issue

15. An enterprise should disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements before issuance, the enterprise should disclose that fact.

16. It is important for users to know when the financial statements were authorised for issue, as the financial statements do not reflect events after this date.

Updating disclosure about conditions at the balance sheet date

17. If an enterprise receives information after the balance sheet date about conditions that existed at the balance sheet date, it should update disclosures that relate to these conditions, in the light of the new information.

18. In some cases, an enterprise needs to update the disclosures in its financial statements to reflect information received after the balance sheet date, even when the information does not affect the amounts that the enterprise recognises in its financial statements. one example of the need to update disclosures is when evidence becomes available after the balance sheet date about a contingent liability that existed at the balance sheet date.

Non-adjusting events after the balance sheet date

19. If non-adjusting events after the balance sheet date are material, non-disclosure could influence the economic decisions of users taken on the basis of the fiancial statements. Accordingly, an enterprise should disclose the following information for each material category of non-adjusting event after the balance sheet date:

(a) the nature and amount of the event; and

(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

20. The following are examples of non-adjusting events after the balance sheet date that would generally result in disclosure:

(a) a major business combination (VAS Business combinations, requires specific disclosures in such cases) or disposing of a major subsidiary;

(b) announcing a plan to discontinue an operation, disposing of assets or settling liabilities attributable to a discontinuing operation or entering into binding agreements to sell such assets or settle such liabilities;

(c) major purchases and disposals of assets;

(d) the destruction of a major production plant by a fire or flood;

(e) announcing a major restructuring;

(f) major ordinary share transactions and potential ordinary share transactions after the balance sheet date;

(g) abnormally large changes in asset prices or foreign exchange rates;

(h) changes in tax rates or tax laws enacted that have a significant effect on current and deferred tax assets and liabilities;

(i) entering into significant commitments or contingent liabilities; and

(j) commencing major litigation arising solely out of events.