Analysis of Adjusting and Non-Adjusting Events in Financial Reporting

This report focuses on the analysis of adjusting and non-adjusting events as per AASB 110, the accounting standard concerning events after the balance sheet date. It explores the distinction between adjusting events, which existed at the balance sheet date, and non-adjusting events, which did not. The report emphasizes the importance of materiality in determining the treatment of these events. The report examines the impact of these events on the financial statements, providing examples such as returned goods, destruction of machinery, asset revaluation, and unauthorized cheques. For each scenario, the report determines whether the event is material and whether it requires adjustment in the balance sheet or disclosure in the notes to the accounts. The report highlights the significance of correctly classifying and reporting these events to ensure the accuracy and reliability of financial statements. Furthermore, the report references relevant sources for additional information and guidelines.

External Reporting

As per AASB 110, events occurring after balance sheet date are events which take place after
the balance sheet date but before singing of the final accounts. These events can be classified
into two major categories, adjusting events and non-adjusting events (CAANZ, 2017).
Adjusting events are those events for which conditions existed on the balance sheet date,
whereas non-adjusting events are those events for which there exist no conditions on the
balance sheet date. As per the accounting standard, an entity is required to make adjustments
or entries for the adjusting events in the balance sheet. For the non-adjusting events it would
be enough for the company to report them in notes, if they are significant, else they are to be
adjusted in the next balance sheet of the company (Aasb.gov.au, 2018). Also, it is important
to understand the concept of materiality for this classification, any adjusting event if material
will be reported in the final accounts. Materiality cannot be stated as a percentage or in any
quantitative form. Any information which might affect the decision of the investor will be
considered material. Considering this data we have classified few events of the Astro ltd as
material or immaterial, if material then if they are adjusting or non-adjusting:
1. In the given scenario one of the customers of the company has returned goods worth
$180000, due to the reason that the wrong goods were sent. The sale took place on
25th of June, and goods were returned on 3rd of July. This affects the profit of the
company by $16000.
The sum of $16000 is material to the company. Since the sale took place before the
balance sheet date this event is to be classified as adjusting event and is to reported in
the balance sheet.
2. In this case we see that an important machinery of the company was destroyed which
harmed the operations of the company and resulted in loss of profits. The incident
took place on 7th of August which is after the balance sheet date. This can affect the
going concern assumption of the company. If this assumption is harmed, then this
event is material and also adjusting event, requiring adjustment in the books of
accounts.
3. In the given case we see that the asset of the company has been upward revalued at
$900000 when it should have been revalued at $980000. This shows that the asset has
been undervalued by $80000. The amount of $80000 is material and this mistake may
affect the decision of the investor. Therefore this even is material and adjusting, both.
The balance sheet should be adjusted.

4. In the given case Paul has authorised some cheques for which goods were not
received. The amounts involved in the case are not huge and hence not material. But
this may lead to detection of fraud for the company in future. This is not material, but
the company should report this event in the annual report in the notes to accounts.

References
Aasb.gov.au. (2018). Framework for the Preparation and Presentation of Financial
Statements. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-
14.pdf [Accessed 27 Apr. 2018].
CAANZ, C. (2017). FINANCIAL REPORTING HANDBOOK 2017 AUSTRALIA. SYDNEY:
WILEY AUSTRALIA.