Sunday, July 24, 2016

10 (ten) Case Study solutions on IAS 10 –Events after the Reporting Period

“An eye for an eye makes the whole world blind.”
Mahatma Gandhi


Welcome to another edition of IFRS is easy

A Reddit thread asked users to reveal a prank they’ve attempted that went horribly wrong. One of the comments got me laughing out loud. The Reddit user (a male) wrote thus:

When I was about 15, I wrote a really corny love letter to my middle-aged French teacher in terrible French and signed my friend’s name. The whole thing was ridiculous –it was a direct translation, so all the grammar was terrible and it had lines like, “I love you more than the desert misses the rain, my sweet.” I snuck the letter into her bag and then at the end of class she grabbed my friend and told him to stay behind.
About 20 minutes of maniacal chuckling later, my friend came up to me with a confused, somewhat traumatized look on his face. It turns out that, without even mentioning the letter to him, the teacher had declared that she also had strong feelings for him. She explained how she couldn’t keep her eyes off him in class, had entertained fantasies about him and had no idea that he felt the same way, but that their relationship could go no further. My friend just stared at her in stunned silence until she eventually ushered him to leave.

I guess almost everyone would have been a victim of pranks like that before. Maybe not exactly as above. You’ll just keep staring at the person, wondering whether you are dreaming or it’s actually real.

Yea, even the world of accounting can be that unreal sometimes. I was reading some of the requirements of IAS 10 with respect to non-adjusting events and this particular requirement got me twisting my brain within my cranium:

IAS 10 requires that the decline in fair value of investments between reporting period and date when the financial statements are issued, should be classified as a non-adjusting event.

A non-adjusting event? Why? Did the investment not already exist before the end of the year? Why then will IAS 10 allow the sale of inventory at a price substantially lower than its cost after the balance sheet date, to be classified as an adjusting event, all because the inventory was in the books before the year end? Why will IAS 10 require that the bankruptcy of a customer after the balance sheet date, should be classified as an adjusting event? Didn’t the three events seem to be of the same line? Didn’t they all seem to provide evidence of conditions that existed at the balance sheet date?

After much ado, I had no choice but to agree to the IAS 10 requirement as it explains that the decline in fair value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances (prevailing economic conditions that didn’t exist before the year-end) that have arisen subsequently.

If you have a dissenting opinion, I’ll be glad to hear it. The comment box is wide open.

As promised, we bring to you 10 case study questions and solutions on IAS 10. You can download the questions coupled with the solutions here.                                                                                           
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