［Concept 014］HKAS 10 / IAS 10 Adjusting vs Non‑adjusting Events in Plain English

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Plain‑English explainer of HKAS 10 / IAS 10 for students, junior accountants and non‑specialists who find official standards too dense to read.

This article is based on Hong Kong Accounting Standards (HKAS / HKFRS), which are fully aligned with IAS / IFRS except for minor local tweaks, so the same principles generally apply under IAS / IFRS unless noted otherwise. The goal is to unpack HKAS 10 Events after the Reporting Period (equivalent to IAS 10) using plain English and practical, real‑life examples instead of technical jargon. It is written for students, junior accountants, audit juniors and finance professionals who want to understand not just “what the standard says” but how to actually read and prepare financial statements in line with it.

When you see “the company” or “the entity” below, you can think of any entity that prepares general purpose financial statements under HKFRS / IFRS.

When Post‑Year‑End News “Cuts into Line”

Imagine you are reviewing the draft financial statements of a Hong Kong company for the year ended 31 March 2025. The audit is almost finished, and the board plans to approve the financial statements in mid‑June. During this period, several major pieces of news arrive one after another: a lawsuit that has been going on for two years is suddenly settled, a major customer declares bankruptcy, a fire breaks out on one floor of the warehouse, and management is also negotiating to acquire a competitor.

All of these things happen after the reporting date (31 March 2025) but before the date the financial statements are authorized for issue by the board. On your working papers, you immediately face a few very practical questions:

• Which of these events require adjustments to the statement of financial position and statement of profit or loss?
• Which only need to be disclosed in the notes?
• Which do not even need disclosure?

HKAS 10’s main job is to turn this messy batch of post‑year‑end news into a clear decision flow for you. Instead of guessing case by case, you follow one consistent logic.

What You Should Be Able To Do After Reading?

By the end, you should be able to:

• Apply a simple two‑step framework to distinguish adjusting events from non‑adjusting events, using the key question “Did the underlying condition exist at the reporting date?”.
• Recognise common adjusting event types such as lawsuit settlements, customer bankruptcies, inventory net realisable value (NRV) issues, bonuses and profit‑sharing, and the discovery of errors or fraud, and know how they typically affect key line items.
• Recognise common non‑adjusting event types such as business combinations, major fires, big movements in share prices or exchange rates, major tax law changes and new lawsuits, and know when disclosure is needed without adjusting amounts.
• Deal more confidently with “grey‑area” scenarios by asking structured questions instead of just memorizing examples.
• Use a few quick memory aids and self‑check questions that help you respond under exam pressure or in real‑life working papers.

1. The core decision logic – ask “When did the condition exist?”

Many people learn HKAS / IAS 10 by rote: customer bankruptcy is “usually adjusting”, fire is “usually non‑adjusting”, business combinations are “usually non‑adjusting”, and so on. This works until you face a scenario that looks similar but is not exactly the same, and you suddenly get stuck.

A more robust approach is to build a simple two‑step decision framework:

1. Does the post‑year‑end event relate to an underlying condition that already existed at the reporting date?
2. If yes, it is usually an adjusting event; if no, it is usually a non‑adjusting event, which is only disclosed if material.

Consider this common scenario:

• In 2024, a customer sues the company for defective products and claims compensation.
• At 31 March 2025 (year‑end), the case is still ongoing, and the company has recognised a provision based on HKAS 37 Provisions, Contingent Liabilities and Contingent Assets (equivalent to IAS 37).
• In May 2025, the court issues a judgment, confirming a compensation amount significantly higher than originally estimated.

This is an adjusting event because:

• The legal obligation already existed at 31 March 2025.
• The post‑year‑end judgment only provides better evidence of how large that obligation actually was at year‑end.

Accounting‑wise, you would normally:

• Adjust the provision at year‑end, increasing the amount and the related expense.
• As a result, reduce profit and increase liabilities in the 2024–25 financial statements.

You can compress this whole framework into one simple question:

“Is the root cause of this event already there before the reporting date, or does it only arise afterwards?”

If the root cause was already there, you are usually looking at an adjusting event. If it only appeared afterwards, it is usually non‑adjusting and may only require disclosure if significant.

2. Typical adjusting events and how to account for them

Adjusting events are post‑reporting‑date events that provide additional evidence of conditions that already existed at the end of the reporting period. They change the financial statements because they show that your previous measurement or recognition at year‑end was incomplete or incorrect. Here are the most common and exam‑friendly situations.

Lawsuit settlement – the obligation was there all along

Scenario:

• The company was sued in 2024 over allegedly defective products.
• At 31 March 2025, the lawsuit is still ongoing, and the company has recognised a provision based on HKAS 37.
• In early June 2025, the court issues a judgment, and the final compensation amount is much higher than the original estimate.

Why this is an adjusting event:

• The obligation from the lawsuit already existed at 31 March 2025.
• The June judgment only gives more precise evidence of the obligation that the entity had at year‑end.

Typical accounting treatment:

• Adjust the provision as at 31 March 2025 to the new, higher amount.
• Recognise the additional expense in profit or loss for the year ended 31 March 2025, and increase the liability in the statement of financial position.

Customer bankruptcy – the bad‑debt risk was hidden at year‑end

Another classic adjusting event is when a customer goes bankrupt shortly after year‑end.

Example:

• At 31 March 2025, the company has a trade receivable of 10 million from a major customer.
• In mid‑May 2025, the customer formally enters bankruptcy and liquidation.
• The information shows that the customer was already in serious financial difficulty at year‑end; you just did not have the full picture then.

Under HKAS / IAS 10, this is normally an adjusting event because the customer’s financial difficulty existed at the reporting date. The bankruptcy is just the final confirmation.

Typical accounting:

• Increase the loss allowance / impairment loss for trade receivables at 31 March 2025.
• Recognise additional bad‑debt expense and reduce the carrying amount of the trade receivable.

This kind of situation is extremely common in Hong Kong audits of March year‑ends, especially when reviewing receivables in April–June. That is why HKAS 10 is not just theory; it directly affects day‑to‑day audit and reporting work.

Inventory NRV – post‑year‑end data confirms earlier weakness

Suppose the company holds a batch of inventory at 31 March whose market price is affected by instability, but at that date it is hard to estimate the net realisable value (NRV) reliably.

• In April or May, new market data or actual selling prices show that this inventory can only be sold at a much lower price.
• If the later information simply reflects demand weakness or price declines that already existed at 31 March, it is an adjusting event.

Accounting:

• Reduce the carrying amount of inventory to the lower NRV at 31 March.
• Recognise an impairment loss (write‑down of inventory) in the reporting period.

However, if the price drop is caused by a new event after year‑end (for example, a sudden new regulation or a new competing product launched in April that fundamentally changes the market), then the event may be non‑adjusting. We will come back to this in the non‑adjusting section.

Confirming costs, revenue, bonuses and profit‑sharing

HKAS / IAS 10 also lists other typical adjusting events such as:

• Final determination after year‑end of the cost of assets purchased or consideration for assets sold before year‑end.
• Determining bonuses or profit‑sharing amounts after year‑end when the obligation actually existed at year‑end.

Example:

• The company has a formal agreement that if profit for the year ended 31 March 2025 reaches a certain level, management is entitled to a performance bonus at a fixed percentage.
• The board of directors only approves the exact bonus numbers in June 2025.

Even though the approval date is in June, the present obligation existed at 31 March 2025, because the contract terms and the fact that targets were met were already in place. This is usually an adjusting event: the bonus expense and corresponding liability should be recognised in the 2024–25 financial statements.

Discovering errors or fraud

If after the reporting period you discover errors or fraud that affect the reporting period’s numbers, this is also a typical adjusting situation.

Examples:

• During the April–May audit, you find revenue that was recognised before 31 March but does not meet revenue recognition criteria.
• You discover that an employee has been misappropriating company funds throughout the year.

These findings show that the financial statements as at 31 March were wrong. The correction is therefore an adjustment to the prior period figures, not a non‑adjusting “new event”.

3. Typical non‑adjusting events and how to think about disclosure

Non‑adjusting events are events after the reporting period that indicate new conditions arising after the reporting date. They do not change the numbers at year‑end, but if they are material, they still need to be disclosed in the notes, including the nature of the event and an estimate of its financial effect (or a statement if the estimate cannot be made).

Business combinations and major investments

One of the most classic non‑adjusting examples is acquiring a business or disposing of a subsidiary after year‑end. HKAS 10 and HKFRS 3 Business Combinations (equivalent to IFRS 3) explain that such transactions are usually non‑adjusting, because the acquisition itself happens after the reporting period and does not reflect conditions that existed at the reporting date.

In practice:

• You do not “pre‑book” the acquisition into the 31 March balance sheet.
• But you do disclose in the notes the nature of the acquisition, key terms and the expected financial impact, such as effects on revenue or asset size.

Major fires or natural disasters

HKAS / IAS 10 uses the example of a major fire after the reporting period that severely damages a key production plant. This is generally a non‑adjusting event, because the fire is a new event that occurs after year‑end; it does not mean there was damage already at 31 March.

Example:

• Year‑end is 31 March 2025.
• In late April 2025, a fire breaks out in the factory and destroys a significant amount of machinery and equipment.

You do not go back and change the 31 March carrying amounts of those assets. However, if the impact is significant, you disclose in the notes the nature of the fire and your estimate of the financial effects (expected insurance compensation and net loss).

Big moves in share prices or exchange rates

Another typical non‑adjusting category is large movements in market prices or exchange rates after year‑end, for example:

• The listed shares the company holds drop significantly in value during April–May.
• Major foreign currencies (other than HKD) fluctuate sharply in April–June.

HKAS / IAS 10 states that a fall in the market value of investments after the reporting period is normally a non‑adjusting event. These movements mainly reflect new information and conditions after 31 March, not the situation at that date.

If the impact is large—for example, the investment portfolio shrinks substantially or it affects the going‑concern assessment—the company should consider note disclosure explaining the event and its estimated financial impact.

Major tax law or regulatory changes

If new tax laws or major regulatory policies are enacted only after the reporting period, they are generally non‑adjusting events.

Reasons:

• At 31 March, the new law was not yet enacted or substantively enacted.
• Deferred tax and provisions at year‑end should be measured based on tax laws and regulations that have been enacted or substantively enacted by that date.

If the post‑year‑end change is significant (for example, a tax rate increase for your industry or a new licensing regime), it should be disclosed in the notes.

New lawsuits or loss of an otherwise healthy major customer

If in April or May a completely new lawsuit is filed, or the company loses a previously healthy major customer with no warning signs at 31 March, this will usually be a non‑adjusting event. It represents a “new risk” after year‑end and reflects the environment of the next period, not the reporting period.

This is very different from the earlier example where the customer was already in financial trouble at year‑end and the later bankruptcy simply confirms that earlier condition.

4. Grey areas and common misjudgments: practice with questions

On paper, the line between adjusting and non‑adjusting looks clear. In practice and in exams, borderline cases appear all the time. Here are some representative examples and the questions you can use to unpack them.

Inventory damaged after year‑end vs already damaged at year‑end

Scenario A:

• Inventory is in good condition at 31 March.
• In mid‑April, flooding occurs and the inventory is destroyed.

This is usually a non‑adjusting event because the damage happens after year‑end and does not reflect the condition at 31 March.

Scenario B:

• In March, inventory was stored in a warehouse with unsuitable temperature, and in fact some items were already damaged at 31 March.
• Management only discovers the quality issues during stock counts or inspections in April.

This leans towards an adjusting event because the real condition at year‑end was already worse than reported; the post‑year‑end discovery merely reveals that underlying problem.

Ask yourself:

“Did the post‑year‑end event change the inventory, or did it simply reveal that the inventory was already in trouble at year‑end?”

• Changed → non‑adjusting.
• Revealed → adjusting.

Bonuses announced after year‑end but tied to current‑year performance

Assume the company pays an annual bonus based on a fixed percentage of profit for the year ended 31 March, but the board only formally approves the bonus in June.

Key question: Was there a present obligation at 31 March?

If:

• The company has followed this practice consistently for many years.
• Employees have a valid expectation based on past practice.
• Internal policies or contracts specify the calculation method.

Then even though the board approves the exact numbers in June, the obligation usually exists at 31 March, making this an adjusting event. The company should recognise a bonus expense and a liability in the 2024–25 financial statements.

If instead the bonus is only a vague “possibility” with no established practice or clear policy, the board’s decision after year‑end is more like a new commitment. That is closer to a non‑adjusting event because there was no present obligation at the reporting date.

Customer loses a major contract after year‑end

Suppose at 31 March the company has a large trade receivable from a customer who appears healthy. At the end of April, that customer loses a key contract, and its business is seriously damaged, increasing the credit risk on your receivable.

This is usually a non‑adjusting event because the cause of the increased credit risk (the loss of the contract) arises after the reporting date. Compare this to the earlier bankruptcy example, where the customer already had long‑standing financial problems at year‑end. Here, the root cause is a post‑year‑end event, not a condition that existed at the reporting date.

5. Pulling it together: quick logic and memory aids

Now we can compress the whole discussion into a few practical reminders you can keep in your head.

“Two questions, one conclusion” thinking

Whenever you see a post‑year‑end event, walk through these questions:

1. Does the event relate to a risk or condition that already existed at the reporting date (for example 31 March)?
2. Does the post‑year‑end development merely confirm / quantify an existing condition, or does it create a new condition?

Then reach a simple conclusion:

• If you lean towards “existing condition + post‑year‑end confirmation”, it is probably an adjusting event and you adjust amounts.
• If you lean towards “condition arises only after year‑end”, it is probably a non‑adjusting event and you only disclose if material.

A short memory phrase: “Old condition → adjust, new event → disclose”

You can use this short phrase to help:

“Old condition confirmed → adjust; new event, big impact → disclose.”

“Old condition” refers to situations already present but not fully clear at year‑end, such as ongoing lawsuits, existing quality problems, or customers already in deep financial trouble.

“New event” covers things that truly happen after the reporting date, such as an April fire, a May acquisition, or a tax law passed in June.

Common traps in practice and exams

In both exams and working papers, people often trip over the same issues:

• Treating post‑year‑end share price declines as adjusting events: in most cases they are non‑adjusting; you do not restate the numbers at year‑end, but you may need to disclose major market changes.
• Treating dividends declared after year‑end as a liability at the reporting date: HKAS / IAS 10 explicitly says dividends declared after the reporting period are not liabilities at year‑end, because shareholders’ right to receive them only arises after the declaration.
• Ignoring the effect of post‑year‑end judgments on existing litigation provisions: people treat the judgment as “just news” and forget it is the best evidence of the obligation at year‑end, so the provision should be updated.

Build your reasoning into working papers

One practical habit that helps both your own thinking and review by seniors or auditors:

• Describe the event briefly.
• State clearly whether you believe the underlying condition existed at the reporting date.
• Conclude whether it is adjusting or non‑adjusting, and whether disclosure is needed.

This discipline not only clarifies your logic but also makes it easier to defend your judgment to managers, partners or regulators.

Key takeaways for students and junior accountants

• Whenever you see “period after” news in an audit or closing meeting, first anchor yourself on the reporting date and ask whether the root condition already existed then.
• Use the two‑step framework (“condition at year‑end?” and “confirm vs new?”) before opening the standard; this helps you avoid getting lost in example lists.
• In exams and working papers, always write down your reasoning: what happened, when the underlying condition existed, and why you classify the event as adjusting or non‑adjusting.
• Be especially careful with common traps: post‑year‑end share price drops, dividends declared after year‑end, and court judgments on existing provisions.
• When reading contracts, drafting journal entries or preparing working papers, make it a habit to separate “evidence about the past reporting date” from “genuinely new events”; that mental habit is exactly what HKAS / IAS 10 is training you to build.

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