What is the difference between events after the adjusted balance sheet date and annual adjustments?
A. The settlement of a legal dispute after the balance sheet date, which confirms the existence of the current obligation of the business unit on the balance sheet date. The commercial unit adjusts any related identified reserves according to accounting standard No. 4 as reserves, contingent liabilities and contingent assets. The business unit should not be satisfied with the disclosure of the probable debt resulting from the settlement of the above legal dispute, because the settlement of the said dispute confirms the additional evidence of the need to adjust the reserve on the balance sheet date.
b. The information received after the balance sheet date indicates that the value of an asset has decreased on the balance sheet date or the amount of previously recognized impairment loss for that asset needs to be adjusted, for example:
C- Bankruptcy of a customer that occurs after the balance sheet date usually confirms the existence of a loss on a trade receivable on the balance sheet date, and the business unit is required to adjust the book value of the trade receivables, and the sale of goods after the balance sheet date is possible. Provide evidence about their net sales value on the balance sheet date.
c. Determining the cost price of purchased assets or the proceeds from the sale of assets after the balance sheet date, if the transactions were completed before the balance sheet date,
d. Determining the amount of payments related to participation in profit or bonus after the balance sheet date, if the commercial entity has a current legal or customary obligation for such payments as a result of events before the said date,
e. Approval of dividends by the general assembly of subsidiary and affiliated companies for the period or periods before the balance sheet date of the main company or simultaneously with it.
and receiving payment or determining the receivable amount for damage claims from insurance companies that were in the negotiation stage on the balance sheet date, and
G. Detecting cases of fraud or mistakes that indicate incorrectness of financial statements.
Annual adjustments, i.e. items related to previous years, which are meant in adjusting the balance of accumulated profit (loss) at the beginning of the period, are limited to items that result from “change in accounting procedure” and “error correction”.
The effect of annual adjustments should be reflected in the financial statements by correcting the accumulated profit (loss) balance at the beginning of the period.
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
Group of accountants, auditors, Tabriz
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ