How do I distinguish between adjusting and non-adjusting events after the reporting period under IAS 10?
A CFA Level I question described a company whose warehouse burned down in January 2026, after the December 31, 2025 reporting date but before the financial statements were authorized for issue. The answer said this was a non-adjusting event. But another question about a customer going bankrupt in January (who owed money at year-end) said that WAS an adjusting event. What is the rule for telling them apart?
The distinction comes down to one question: did the condition exist at the balance sheet date?
IAS 10 Framework:
- Adjusting events provide evidence of conditions that existed at the end of the reporting period. The financial statements ARE adjusted.
- Non-adjusting events are indicative of conditions that arose after the reporting period. The financial statements are NOT adjusted (but may require disclosure).
Your two examples explained:
Example 1 — Customer bankruptcy (Adjusting):
Stonewall Retail owes Meridian Supply $350,000 at December 31, 2025. In January 2026, Stonewall declares bankruptcy.
This is adjusting because the financial difficulty that led to bankruptcy was already developing at December 31. The receivable was already impaired — the January bankruptcy merely confirms what existed at year-end. Meridian should adjust the 2025 financial statements to write down the receivable.
Example 2 — Warehouse fire (Non-adjusting):
Clearview Logistics' warehouse burns down on January 15, 2026 due to an electrical fault.
This is non-adjusting because the fire is a new event. The warehouse was intact and fully functional on December 31, 2025. The condition (the fire) did not exist at the balance sheet date. The 2025 financial statements are not adjusted, but Clearview must disclose the nature of the event and an estimate of its financial effect in the notes.
More examples to cement the distinction:
| Event | Adjusting or Non-Adjusting? | Reasoning |
|---|---|---|
| Court rules on lawsuit filed in Nov 2025, judgment in Feb 2026 | Adjusting | Obligation existed at year-end |
| Major acquisition announced Jan 2026 | Non-adjusting | New transaction, no prior condition |
| Inventory sold in Jan 2026 below carrying value at Dec 31 | Adjusting | Confirms NRV was lower at year-end |
| Share price drops 40% in Jan 2026 | Non-adjusting | Market condition arose after year-end |
| Discovery in Feb 2026 that Dec 2025 inventory was miscounted | Adjusting | Error existed at year-end |
Going concern exception:
If non-adjusting events indicate that the going concern assumption is no longer appropriate (e.g., the company's sole factory is destroyed and uninsured), the financial statements must be prepared on a different basis entirely — this is the one case where non-adjusting events fundamentally change the financial statements.
Exam tip: The key word is "condition." Ask yourself: was the economic condition already present on December 31? If yes, it is adjusting. If the event is entirely new with no pre-existing condition, it is non-adjusting.
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