Under FRS 10 and SFRS(I) 1-10 Events after the Reporting Period, a Singapore company must look at what happens between its financial year end and the date the directors authorise the financial statements for issue. Events that give evidence about conditions that already existed at year end, such as a customer’s insolvency or the settlement of a court case, are “adjusting”: the figures change. Events that arise after year end, such as a fire or a major acquisition, are “non-adjusting”: the figures stay, but material ones are disclosed. Dividends declared after year end are not a year-end liability.
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Which period does the standard cover?
Events after the reporting period are events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. For a Singapore private company, that is normally the date the board approves the statements and the directors sign the directors’ statement. Shareholder approval at a later AGM does not extend the window. The standard says the financial statements are authorised for issue on the date of issue, not the date shareholders approve them.
The window can be long. A company with a 31 December year end whose directors sign in May has five months of events to review. The longer the delay, the more likely something material has happened. The company must also disclose the date the statements were authorised for issue and who gave that authorisation, because readers need to know that later events are not reflected.
How do you tell an adjusting event from a non-adjusting one?
Ask one question: did the condition exist at the year end?
- Adjusting events provide evidence of conditions that existed at the end of the reporting period. The company adjusts the amounts in its statements, or recognises items not previously recognised.
- Non-adjusting events are indicative of conditions that arose after the reporting period. The amounts are not adjusted. If the event is material, the company discloses its nature and an estimate of its financial effect, or states that an estimate cannot be made.
The standard’s own examples of adjusting events include:
- settlement of a court case after year end that confirms the company had a present obligation at year end;
- information showing an asset was impaired at year end, for example a customer’s bankruptcy after year end confirming a loss on a trade receivable, or inventory sold after year end giving evidence of its net realisable value;
- determination after year end of the cost of assets bought, or proceeds of assets sold, before year end;
- determination of profit-sharing or bonus payments where there was a present obligation at year end; and
- discovery of fraud or errors showing the statements are incorrect.
Its examples of non-adjusting events that generally need disclosure include a major business combination or disposal of a major subsidiary, announcing a plan to discontinue an operation, major asset purchases or disposals, destruction of a major production plant by fire, announcing a major restructuring, major share transactions, abnormally large changes in asset prices or exchange rates, changes in tax rates or tax laws enacted or announced after year end, significant new commitments or guarantees, and major litigation arising solely from events after year end. A fall in the market value of investments after year end is also non-adjusting, because it reflects later circumstances.
Ten common events, classified
| Event after year end | Classification | Effect on the statements |
|---|---|---|
| A customer owing money at year end goes into liquidation | Adjusting | Reduce the receivable or increase the loss allowance |
| A lawsuit pending at year end settles for a fixed sum | Adjusting | Recognise or adjust the provision to the settlement amount |
| Year-end stock is sold below cost | Adjusting (usually) | Write inventory down to net realisable value |
| Bonuses for the year are fixed, where staff were already entitled | Adjusting | Accrue the bonus amount |
| Fraud or an error in the year’s records is discovered | Adjusting | Correct the figures |
| Directors declare a dividend after year end | Not a year-end liability | Disclose in the notes |
| A fire destroys the warehouse after year end | Non-adjusting | Disclose nature and estimated effect |
| The company acquires another business | Non-adjusting | Disclose |
| Listed investments fall sharply in value | Non-adjusting | Disclose if material |
| The company gives a large bank guarantee for a related company | Non-adjusting | Disclose the commitment |
“Usually” matters for inventory. If goods were sold cheaply because of damage or a price fall that happened after year end, the condition did not exist at year end and the sale is not evidence of year-end value.
Why is a dividend declared after year end not a liability?
The standard is explicit: if a company declares dividends after the reporting period, it must not recognise them as a liability at year end, because no obligation existed at that time. They are disclosed in the notes instead. This catches many owner-managed companies whose directors approve a final dividend while finalising the accounts. Before any dividend is paid, directors should also confirm that the company has profits available and remains solvent. Our guide to declaring and paying dividends in a Singapore company covers the procedure.
What if the company’s survival is in doubt after year end?
Going concern is the exception to the “no adjustment” rule. A company must not prepare its statements on a going concern basis if management determines after the reporting period that it intends to liquidate the company or cease trading, or has no realistic alternative but to do so. Deterioration in results after year end may signal a need to revisit the assumption. If it no longer holds, the standard requires a fundamental change in the basis of accounting rather than adjusting individual figures. Material uncertainties arising after year end may also need disclosure. Directors should treat a serious post-year-end event, such as losing the largest customer or the bank withdrawing a facility, as a trigger for a full going concern review before they sign.
Which disclosures are required?
- Date of authorisation: the date the statements were authorised for issue and who authorised them, and whether the owners or others can amend them after issue.
- Updated disclosures: where information received after year end relates to year-end conditions, update the related notes, for example on a contingent liability, even if no figure changes.
- Material non-adjusting events: for each material category, the nature of the event and an estimate of its financial effect, or a statement that an estimate cannot be made.
- Dividends declared after year end: in the notes.
Adjusting events that create or change a provision also follow the rules in FRS 37. Our article on provisions and contingent liabilities under FRS 37 explains when a claim becomes a provision rather than a note.
How do post-year-end events affect tax and filing deadlines?
Tax computation. The corporate income tax computation starts from the profit in the final financial statements. An adjusting event that increases a provision or writes down an asset changes accounting profit, so the tax computation must start from the adjusted figures, and each adjustment must then be checked for deductibility under tax rules. A non-adjusting event affects the following year’s accounts and tax. Where an estimate of chargeable income was filed before the accounts were finalised, compare it with the final figures.
Directors’ statement timing. The directors’ statement and the date of authorisation should be the same date, and the review of subsequent events should run right up to it. Signing a statement prepared weeks earlier without a fresh review leaves a gap. If an auditor is involved, the auditor also performs subsequent-events procedures up to the date of the audit report, so keep the auditor informed of anything new.
AGM and annual return. A non-listed company must hold its AGM within six months after its financial year end, unless it has validly dispensed with AGMs, and file its annual return within seven months. Leaving the accounts late both lengthens the subsequent events window and squeezes these deadlines. Our Singapore company compliance calendar sets out each date. If a material error is found after the statements have been issued and filed, that is no longer a subsequent event: the route is revised financial statements, covered in our guide to filing revised financial statements with ACRA.
Subsequent events review checklist
- Read board minutes and resolutions passed after year end.
- Review receipts from year-end debtors and any customer insolvency notices.
- Compare post-year-end selling prices of inventory with year-end cost.
- Ask about legal claims, settlements and demands received or made.
- Check new loans, guarantees, acquisitions, disposals and restructuring plans.
- Note any fire, flood, theft or other loss.
- Confirm dividends declared and their dates.
- Review management accounts and cash flow for signs of deterioration.
- Record the review and the date it was completed, as close as possible to signing.
Example: two events in the same window
Example: A hypothetical furniture importer has a 31 March year end and plans to sign its financial statements on 20 July. A trade debtor owing S$65,000 at year end, which had been paying late since February, enters liquidation in June. Because the customer’s difficulties existed at year end, this is an adjusting event, and the receivable is written down. In early July, a storeroom fire destroys S$40,000 of stock delivered in May. The fire arose after year end, so year-end inventory is not adjusted, but the company discloses the event and its estimated effect, net of the expected insurance claim. The directors also approve a final dividend on 20 July, disclosed in the notes rather than recorded as a liability. The tax computation for the year starts from the profit after the debtor write-down.
Frequently asked questions
Does the window end at the AGM?
No. It ends when the financial statements are authorised for issue, normally when the board approves them and the directors sign. Shareholder approval later does not reopen the window.
Are interim dividends paid before year end affected?
No. A dividend declared and paid within the financial year is already reflected in that year’s equity. The rule applies only to dividends declared after the reporting date.
Do these rules apply to small companies that are not audited?
Yes. Audit exemption does not remove the need to comply with accounting standards. The directors must still review events up to signing and reflect them correctly.
What if an important event happens after the directors have signed?
It is outside the scope of those statements and will be dealt with in the next year’s accounts. If it reveals that the issued statements were wrong, the directors should consider whether revised financial statements are needed.
Is a court judgment after year end always adjusting?
Only if the obligation existed at year end, for example a claim about goods supplied during the year. Litigation arising solely from events after year end is non-adjusting and is disclosed if material.
Official sources: ACRA: AGM due dates, ACRA: annual return deadlines.
Need help with your year-end financial statements?
If you are finalising your company’s financial statements and need help reviewing events after year end, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133. We can maintain your books, prepare the financial statements and directors’ statement, draft subsequent events disclosures, prepare the corporate tax computation, and coordinate with your auditors and company secretary on AGM and annual return filings.
Kevin Yeo, Raffles Corporate Services