Accounting Standard for Local Bodies (ASLB) 6

Events After the Reporting Date

(Based on corresponding IPSAS 14)
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
2
Accounting Standard for Local Bodies (ASLB) 6
Events After the Reporting Date
CONTENTS
Paragraph
OBJECTIVE 1
SCOPE 2-3
DEFINITIONS 4
AUTHORISING THE FINANCIAL STATEMENTS FOR ISSUE 5-6
RECOGNITION AND MEASUREMENT 714
Adjusting Events After the Reporting Date 89
Non-Adjusting Events After the Reporting Date 10-12
Dividends or Similar Distributions 12-14
GOING CONCERN 15-23
Restructuring 23
DISCLOSURE 24-29
Disclosure of Date of Authorisation 24-25
Updating Disclosure about Conditions at the Reporting Date 2627
Disclosure of Non-Adjusting Events after the Reporting Date 2829
Appendix A:
Comparison with IPSAS 14
3
Accounting Standard for Local Bodies (ASLB) 6
Events After the Reporting Date
(This Accounting Standard includes paragraphs set in bold italic type and plain type,
which have equal authority. Paragraphs in bold italic type indicate the main principles.
This Accounting Standard should be read in the context of its objectives and the
Preface to the Accounting Standards for Local Bodies
1
).
The Accounting Standard for Local Bodies (ASLB) 6, Events After the Reporting
Date, issued by the Council of the Institute of Chartered Accountants of India, will be
recommendatory in nature in the initial years for use by the local bodies. This Standard
will be mandatory for Local Bodies in a State from the date specified in this regard by
the State Government concerned
2
.
The following is the text of the Accounting Standard for Local Bodies.
Objective
1. The objective of this Standard is to prescribe:
(a) When an entity should adjust its financial statements for events
after the reporting date; and
(b) The disclosures that an entity should give about the date when
the financial statements were authorised for issue and about
events after the reporting date.
The Standard also requires that an entity should not prepare its financial
statements on a going concern basis if events after the reporting date
indicate that the going concern assumption is not appropriate.
Scope
2. An entity which prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in the
accounting for, and disclosure of, events after the reporting date.
1
Attention is specifically drawn to paragraph 4.2 of the Preface to the Accounting Standards for Local
Bodies, according to which Accounting Standards are intended to apply only to items which are
material.
2
Reference may be made to the paragraph 7.1 of the Preface to the Accounting Standards for Local
Bodies providing the discussion on the compliance with the Accounting Standards for Local Bodies.
4
3. This Standard applies to the entities described as Local Bodies in
the Preface to the Accounting Standards for Local Bodies
3
.
Definitions
4. The following terms are used in this Standard with the meanings
specified:
Events after the reporting date are those events, both favourable
and unfavourable, that occur between the reporting date and the
date when the financial statements are authorised for issue. Two
types of events can be identified:
(a) Those that provide evidence of conditions that existed at the
reporting date (adjusting events after the reporting date);
and
(b) Those that are indicative of conditions that arose after the
reporting date (non-adjusting events after the reporting
date).
Reporting date means the date of the last day of the reporting
period to which the financial statements relate.
Terms defined in other Accounting Standards for Local Bodies are
used in this Standard with the same meaning as in those other
Standards.
Authorising the Financial Statements for Issue
5. In order to determine which events satisfy the definition of events after
the reporting date, it is necessary to identify both the reporting date and
the date on which the financial statements are authorised for issue. The
reporting date is the last day of the reporting period to which the
financial statements relate. The date of authorisation for issue is the date
on which the financial statements have received approval from the
individual or body with the authority to finalise those statements for
issue.
6. The process involved in preparing and authorising the financial
statements for issue may vary for different types of entities within and
across jurisdictions. It can depend upon the nature of the entity, the
governing body structure, the statutory requirements relating to that
entity and the procedures followed in preparing and finalising the
financial statements. In some cases, the governing body of an entity is
required to issue its financial statements to a standing committee for
3
Refer paragraph 1.3 of the Preface to the Accounting Standards for Local Bodies.
5
approval. In such cases, the financial statements are authorised to issue
when the governing body authorises them for issue to the standing
committee.
Example
On 18 March, 20X9, the governing body of an entity authorises financial
statements for issue to its standing committee. The standing committee
approves the financial statements on 26 March, 20X9. The financial statements
then filed with the State Government on 17 May, 20X9.
The financial statements authorised for issue on 18 March, 20X9 (date of
governing bodys authorisation for issue to the standing committee).
PUBLIC SECTOR
Recognition and Measurement
7. In the period between the reporting date and the date of authorisation for
issue, elected government including local body may announce its
intentions in relation to certain matters. Whether or not these announced
government intentions would require recognition as adjusting events
would depend upon whether they provide more information about the
conditions existing at reporting date and whether there is sufficient
evidence that they can and will be fulfilled. In most cases, the
announcement of government intentions will not lead to the recognition
of adjusting events. Instead, they would generally qualify for disclosure
as non-adjusting events.
Adjusting Events After the Reporting Date
8. An entity shall adjust the amounts recognised in its financial
statements to reflect adjusting events after the reporting date.
9. The following are examples of adjusting events after the reporting date
that require an entity to adjust the amounts recognised in its financial
statements, or to recognise items that were not previously recognised:
(a) The settlement after the reporting date of a court case that
confirms that the entity had a present obligation at the reporting
date. The entity adjusts any previously recognised provision
related to this court case in accordance with proposed ASLB on
Provisions, Contingent Liabilities and Contingent Assets
4
or
recognises a new provision. Guidance for accounting on
Provisions, Contingent Liabilities and Contingent Assets can be
found in Accounting Standard (AS) 29, Provisions, Contingent
Liabilities and Contingent Assets until the ASLB on this subject
4
The ASLB on Provisions, Contingent Liabilities and Contingent Assets is under preparation.
6
is formulated. The entity does not merely disclose a contingent
liability because the settlement provides additional evidence that
would be considered in accordance with relevant paragraph of
the Accounting Standard for Local Bodies on Provisions,
Contingent Liabilities and Contingent Assets .
(b) The receipt of information after the reporting date indicating that
an asset was impaired at the reporting date, or that the amount of
a previously recognised impairment loss for that asset needs to
be adjusted. For example:
(i) the insolvency of a debtor which occurs after the
reporting date may often confirm that a doubt of recovery
existed at the reporting date on a receivable account and
that the entity needs to adjust the carrying amount of the
receivable account; and
(ii) the sale of inventories after the reporting date may give
evidence about their net realisable value (NRV) at the
reporting date;
(c) The determination after the reporting date of the cost of assets
purchased, or the proceeds from assets sold, before the reporting
date;
(d) The determination after the reporting date of the amount of
revenue collected during the reporting period to be shared with
another entity under a revenue sharing agreement in place during
the reporting period;
(e) The determination after the reporting date of performance bonus
payments to be made to staff if the entity had a present legal or
constructive obligation at the reporting date to make such
payments as a result of events before that date; and
(f) The discovery of fraud or errors that show that the financial
statements were incorrect.
Non-adjusting Events After the Reporting Date
10. An entity should not adjust the amounts recognised in its financial
statements to reflect non-adjusting events after the reporting date.
11. The following are examples of non-adjusting events after the reporting
date:
(a) The insolvency of a debtor which occurs after the reporting date
where no condition existed at the reporting date in respect of that
debtor and, the entity does not adjust the carrying amount of the
7
receivable amount. For example, insolvency of the debtor
occurred due to his premises and other assets destroyed in fire
after the reporting date.
(b) Where an entity has adopted a policy of regularly revaluing
property to fair value, a decline in the fair value of property
between the reporting date and the date when the financial
statements are authorised. The fall in fair value does not
normally relate to the condition of the property at the reporting
date, but reflects circumstances that have arisen in the following
period. Therefore, despite its policy of regularly revaluing, an
entity would not adjust the amounts recognised in its financial
statements for the properties. Similarly, the entity does not
update the amounts disclosed for the property as at the reporting
date, although it may need to give additional disclosure under
paragraph 27; and
(c) Where an entity charged with operating particular community
service programmes decides after the reporting date, but before
the financial statements are authorised, to provide/distribute
additional benefits directly or indirectly to participants in those
programmes. The entity would not adjust the expenses
recognised in its financial statements in the current reporting
period, although the additional benefits may meet the conditions
for disclosure as non-adjusting events under paragraph 27.
PUBLIC SECTOR
Dividends or Similar Distributions
12. If an entity declares dividends or similar distributions after the
reporting date, the entity shall not recognise those distributions as a
liability at the reporting date.
13. Dividends may arise in the local body when, for example, a local body
controls and consolidates the financial statements of a transport
undertaking that has outside ownership interests to whom it pays
dividends. In addition, some local bodies adopt a financial management
framework, for example public private partnership models, that require
them to pay income distributions to their controlling entity, such as the
state government.
14. If dividends or similar distributions to owners are declared (i.e. the
dividends or similar distributions are appropriately authorised and no
longer at the discretion of the entity) after the reporting date but before
the financial statements are authorised for issue, the dividends or similar
distributions are not recognised as a liability at the reporting date
because they do not meet the criteria of a present obligation in the
proposed ASLB on Provisions, Contingent Liabilities and Contingent
Assets. Such dividends or similar distributions are disclosed in the
notes in accordance with the proposed ASLB 1, Presentation of
8
Financial Statements
5
. Dividends and similar distributions do not
include a return of capital.
Going Concern
15. The determination of whether the going concern assumption is
appropriate needs to be considered by each reporting entity. However,
the assessment of going concern is likely to be of more relevance for
individual entities than for a local body as a whole. For example, an
individual entity e.g., transport undertaking may not be a going concern
because the local body of which it forms part has decided to transfer all
its activities to another entity. However, this restructuring has no impact
upon the assessment of going concern for the local body itself.
16. An entity should not prepare its financial statements on a going
concern basis if those responsible for the preparation of the
financial statements or the governing body determine after the
reporting date either that there is an intention to liquidate the entity
or to cease operating, or that there is no realistic alternative but to
do so.
17. In assessing whether the going concern assumption is appropriate for an
individual entity, those responsible for the preparation of the financial
statements, and/or the governing body, need to consider a wide range of
factors. Those factors will include the current and expected performance
of the entity, any announced and potential restructuring of organisational
units, the likelihood of continued government funding and, if necessary,
potential sources of replacement funding.
18. In the case of entities whose operations are substantially budget-funded,
going concern issues generally only arise if the government announces
its intention to cease funding the entity.
19. Some entities, may be required to be fully or substantially self-funding,
and to recover the cost of goods and services from users. For any such
entity, deterioration in operating results and financial position after the
reporting date may indicate a need to consider whether the going
concern assumption is still appropriate.
20. If the going concern assumption is no longer appropriate, this Standard
requires an entity to reflect this in its financial statements. The impact
of such a change will depend upon the particular circumstances of the
entity, for example, whether operations are to be transferred to another
entity, sold or liquidated. Judgment is required in determining whether a
change in the carrying value of assets and liabilities is required.
5
ASLB 1, Presentation of Financial Statements is under preparation.
9
21. When the going concern assumption is no longer appropriate, it is also
necessary to consider whether the change in circumstances leads to the
creation of additional liabilities or triggers clauses in debt contracts
leading to the reclassification of certain debts as current liabilities.
22. Accounting Standard for Local Bodies (ASLB) 1, Presentation of
Financial Statements requires certain disclosures if:
(a) The financial statements are not prepared on a going concern
basis.
ASLB 1 requires that when the financial statements are not
prepared on a going concern basis, this must be disclosed,
together with the basis on which the financial statements are
prepared and the reason why the entity is not considered to be a
going concern; or
(b) Those responsible for the preparation of the financial statements
are aware of material uncertainties related to events or conditions
that may cast significant doubt upon the entitys ability to
continue as a going concern. The events or conditions requiring
disclosure may arise after the reporting date. Proposed ASLB 1
requires such uncertainties to be disclosed.
10
Restructuring
23. Where a restructuring announced after the reporting date meets the
definition of a non-adjustable event, the appropriate disclosures are
made in accordance with this Standard. Guidance on the recognition of
provisions associated with restructuring can be found in proposed ASLB
on Provisions, Contingent Liabilities and Contingent Assets. Simply
because a restructuring involves the disposal of a component of an entity
this does not in itself bring into question the entitys ability to continue
as a going concern. However, where a restructuring announced after the
reporting date means that an entity is no longer a going concern, the
nature and amount of assets and liabilities recognised may change.
Disclosure
Disclosure of Date of Authorisation
24. An entity should disclose the date when the financial statements
were authorised and who gave that authorisation.
25. It is important for users to know when the financial statements were
authorised for issue, as the financial statements do not reflect events
after this date.
Updating Disclosure about Conditions at the Reporting Date
26. If an entity receives information after the reporting date, but before
the financial statements are authorised, about conditions that
existed at the reporting date, the entity shall update disclosures that
relate to these conditions, in the light of the new information.
27. In some cases, an entity needs to update the disclosures in its financial
statements to reflect information received after the reporting date but
before the financial statements are authorised, even when the
information does not affect the amounts that the entity recognises in its
financial statements. One example of the need to update disclosures is
when evidence becomes available after the reporting date about a
contingent liability that existed at the reporting date. In addition to
considering whether it should now recognise a provision an entity
updates its disclosures about the contingent liability in the light of that
evidence.
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Disclosure of Non-adjusting Events After the Reporting Date
28. If non-adjusting events after the reporting date are material non
disclosure could influence the economic decisions of users taken on
the basis of the financial statements. Accordingly, an entity should
disclose the following for each material category of non-adjusting
event after the reporting date:
(a) The nature of the event; and
(b) An estimate of its financial effect, or a statement that such an
estimate cannot be made.
29. The following are examples of non-adjusting events after the reporting
date that would generally result in disclosure:
(a) An unusually large decline in the value of property carried at fair
value, where that decline is unrelated to the condition of the
property at reporting date, but is due to circumstances that have
arisen since reporting date;
(b) The entity decides after reporting date, to provide/distribute
substantial additional benefits in the future directly or indirectly
to participants in community service programmes that it operates,
and those additional benefits have a major impact on the entity;
(c) An acquisition or disposal of a major controlled entity or the
outsourcing of all or substantially all of the activities currently
undertaken by an entity after the reporting date;
(d) Announcing a plan to discontinue an operation or major
programme, disposing of assets or settling liabilities attributable
to a discontinued operation or major programme, or entering into
binding agreements to sell such assets or settle such liabilities;
(e) Major purchases and disposals of assets;
(f) The destruction of a major building by a fire after the reporting
date;
(g) Announcing, or commencing the implementation of, a major
restructuring;
(h) The introduction of legislation to forgive loans made to entities
or individuals as part of a programme;
(i) Abnormally large changes after the reporting date in asset prices
or foreign exchange rates;
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(j) In the case of entities that are liable for income tax or income
tax equivalents, changes in tax rates or tax laws enacted or
announced after the reporting date that have a significant effect
on current and deferred tax assets and liabilities;
(k) Entering into significant commitments or contingent liabilities,
for example, by issuing significant guarantees after the reporting
date; and
(l) Commencing major litigation arising solely out of events that
occurred after the reporting date.
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Annexure A
Note: This Appendix is not a part of the Accounting Standard for Local Bodies. The
purpose of this appendix is only to bring out the major differences between this
Accounting Standard for Local Bodies (ASLB) and the corresponding
International Public Sector Accounting Standard (IPSAS) 14, Events After the
Reporting Date.
Comparison with IPSAS 14, Events After the Reporting Date
1. Authorising the Financial Statements for issue
(i) IPSAS 14 includes the events occurring between the reporting date and
the date when the financial statements are authorised for issue, even if
those events occur after the publication of an announcement of the
surplus or deficit, the authorisation of the financial statements of a
controlled entity or publication of other selected information relating to
the financial statements. ASLB 6 presumes that the publication of an
announcement of the surplus or deficit, the authorisation of the
financial statements of a controlled entity or publication of other
selected information relating to the financial statements are made only
after the date when the financial statements are authorised for issue.
(ii) IPSAS 14 contains additional commentary in its paragraph 7 on
responsibility for authorizing the financial statements. ASLB 6 does
not provide this commentary in view of the fact that the responsibility
for authorisation of financial statements may differ in each state or
local body and is not relevant so far local bodies in India are
concerned.
(iii) IPSAS 14 contains additional commentary in its paragraph 8 on
determining the date of authorisation of the financial statements for
issue which are finally to be authorised for issue by another body and
also this body may have the power to require changes in the audited
financial statements. ASLB 6 does not provide the same in view of the
fact that ordinarily no such power to require changes in the audited
financial statements is there in India so far local bodies are concerned.
2. IPSAS 14 contains additional commentary in its paragraph 27 on rare
circumstances in which any persons or organisations have the authority to
amend the financial statements after issuance. ASLB 6 does not provide this
commentary presuming that no such requirements are applicable to local bodies
in India.
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