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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.
After Year‑End, The World Changes
Imagine a common Hong Kong situation. The company’s year‑end is 31 March. In June 2025, you are getting the financial statements ready for the board to sign. During this post‑year‑end period, several big things happen at the same time:
- In April, the company suffers a huge loss and cash flow becomes very tight.
- In May, talks with the main bank about renewing a key loan formally break down, and the bank demands early repayment.
- At the end of May, the board proposes a dividend that “seems to relate to the 2025 profit”.
- In June, the company also announces the acquisition of a new business of a meaningful size.
Immediately, you face several difficult questions:
- Can the company still prepare its financial statements on a going concern basis?
- Should the dividend proposed in May be recognised as a liability at 31 March in the statement of financial position?
- How should the bank loan issue, the acquisition and these other major post‑year‑end events be disclosed in the notes so that disclosure is “enough but not overkill”?
This article aims to connect these three modules—going concern, dividends and major non‑adjusting events—into one clear thinking framework under HKAS / IAS 10.
What You Should Be Able To Do After Reading?
By the end, you should be able to:
- Explain how HKAS 10 links with the going concern assumption, and when post‑year‑end events can “break” an existing going concern assessment.
- Identify common triggers such as big losses, failed loan renewals and loss of major customers, and distinguish which cases only need non‑adjusting disclosure and which may require a change of basis of preparation.
- Understand why dividends declared after the reporting period are not recognised as liabilities at year‑end, and how HKAS 10, HKAS 37 Provisions (equivalent to IAS 37) and HKAS 1 Presentation of Financial Statements (equivalent to IAS 1) work together on this point.
- Apply the disclosure principles for major non‑adjusting events: describing the nature of the event, estimating the financial impact, and explaining when estimates are not yet possible, using examples such as factory fires and business combinations.
- Break down a combined scenario and decide systematically: what to adjust, what to disclose, whether going concern is affected, and how to handle dividends.
1. How HKAS 10 connects to the going concern assumption
Accounting standards start from the assumption that financial statements are prepared on a going concern basis: the company will continue operating for the foreseeable future, and not be forced into liquidation or severe downsizing in the short term. HKAS 1 Presentation of Financial Statements (equivalent to IAS 1) requires management to assess whether this assumption is appropriate; if it is not appropriate, or if there is a material uncertainty, the company must give special disclosures.
HKAS 10’s role is to answer a specific question: Do events after the reporting period change that going concern assessment? The standard says that if post‑year‑end events show that the company was already not a going concern at the reporting date, those events are adjusting events. In that case, the financial statements may need not only adjustments to certain figures, but a change of the overall basis of preparation (for example, a liquidation basis instead of going concern).
In other words:
- Many adjusting events only affect specific asset and liability amounts (for example, bad debts, lawsuit provisions).
- But when post‑year‑end events touch going concern, the question is one level higher: Can we still present the entire set of financial statements on a going concern basis?
A common working situation is that within a few months after year‑end, the company suddenly loses major funding or a core customer, making it hard to see how it will survive for the next 12 months. HKAS 10 reminds you: do not reflexively treat this as “just a non‑adjusting disclosure”. First ask: Does this undermine the going concern assumption we used at the reporting date?
2. When do you need to reassess going concern? Common triggers
In practice, not every negative post‑year‑end event destroys going concern. HKAS 10 and related guidance often stress two ideas: materiality and the foreseeable future.
Common triggers that may require a fresh going concern assessment include:
- Significant post‑year‑end losses or cash outflows, for example, cancellation of a large contract that leaves the company with a serious working capital shortfall in the next 12 months.
- Failure to renew a key bank loan after year‑end or a demand for immediate repayment, where the company has no realistic alternative finance.
- Post‑year‑end loss of a major customer that represents a very high percentage of revenue, or a key supplier permanently shutting down, making the business model difficult to sustain.
- Management has, after year‑end, started a formal plan for liquidation, major restructuring or closing significant business units, and has taken real steps to implement that plan.
You can simplify the judgment with this question:
“If we take this post‑year‑end event into account, would a reasonable user still believe this company will ‘carry on business as usual for at least one more year’?”
If the answer is clearly no, then you may need to:
- Change the basis of preparation from going concern to another basis (for example, liquidation basis), including re‑measuring assets (perhaps using net realizable or forced‑sale values) and recognising additional liabilities; or
- At minimum, if management still concludes going concern is appropriate, provide a very clear disclosure of the material uncertainty relating to that assumption, so users understand the risk.
On the other hand, if the event merely makes the outlook worse but not fatal, such as:
- One or two loss‑making quarters after year‑end, but the company still has stable financing and cash reserves;
- Loss of one big customer, but the company has other customers or product lines that can realistically fill the gap,
then this usually falls into the category of material non‑adjusting events. The normal treatment is: keep the going concern basis, do not adjust year‑end amounts, but give adequate note disclosure rather than abandoning going concern.
3. Dividends declared after year‑end – why they are not liabilities at year‑end
Many people learning HKAS / IAS 10 for the first time have the same instinct: “Dividends are paid out of last year’s profits, so why can’t we recognise them as liabilities at year‑end?”
HKAS 10’s message is very clear:
If the company declares dividends to shareholders after the reporting period, those dividends must not be recognised as a liability at the reporting date.
There are two key reasons.
No present obligation at the reporting date
Under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets (equivalent to IAS 37), a liability is recognised only when the company has a present obligation to a third party, it is probable that an outflow of resources will be required, and the amount can be reliably estimated.
Dividends are related to accumulated profits, but until the board (or shareholders, where applicable) formally declares them, shareholders have no enforceable right to receive payment. At the reporting date there is no present obligation to pay that dividend.
Past practice is not enough to create an obligation
The IAS 10 Basis for Conclusions notes that simply having a history of paying dividends every year does not create a present obligation. The company cannot recognize a liability just because “we always pay dividends”; there must be a formal declaration or legal requirement.
How to account for post‑year‑end dividends in practice
In practice, you handle post‑year‑end dividends like this:
- At 31 March, do not recognise a dividend payable in the statement of financial position.
- In April or May, when the board approves the dividend, record the entry in the new financial year:
- Debit retained earnings
- Credit dividends payable.
- At the same time, in the financial statements for the year ended 31 March, disclose in the notes the amount of the dividend, its nature and the period it relates to, in line with HKAS 1 disclosure requirements.
A common exam and working‑paper mistake is to show “proposed dividend” as a liability at year‑end, or to force it into the statement of changes in equity as if it were already declared. Under HKAS 10, this is wrong; it must instead be treated as a non‑adjusting event with note disclosure only.
4. Major non‑adjusting events – what and how to disclose
Non‑adjusting events do not change year‑end figures. But if they are important enough to influence users’ decisions, HKAS / IAS 10 requires disclosure in the notes. Generally, the company should disclose:
- The nature of the event: what happened, and which part of the business or which assets are affected.
- An estimate of the financial effect on assets, liabilities, income or cash flows.
- If a reliable estimate is not possible, an explanation of why the financial effect cannot yet be reasonably estimated (for example, the lawsuit is at an early stage, or damage from a building collapse is still being assessed).
Here are some typical examples to help you imagine what good note disclosures might look like.
Factory fire
Example:
- Year‑end: 31 March 2025.
- In mid‑April 2025, a fire breaks out at a factory and significantly reduces production capacity.
A note might cover: the factory location, nature of the fire, types of assets damaged, insurance coverage, expected impact on future production and revenue, and preliminary estimates of loss and insurance compensation.
Major business combination
Example:
- In May, the company announces the acquisition of a sizeable new business.
- Completion is expected in the next financial year.
A note should describe the target business, key transaction terms (consideration, payment method), known and unknown elements at this stage, and management’s expectations about how the acquisition will affect future performance and risk profile.
Major lawsuit or regulatory investigation initiated after year‑end
Example:
- In April, the company receives notice that the regulator has started a major investigation, or a party files a large claim.
- There were no clear indications of this before year‑end.
The note would typically explain the nature of the claim or investigation, the known or estimated amount involved, the status of the case and management’s preliminary assessment, including whether it is possible at this stage to estimate the financial effect.
The key is not to copy every piece of post‑year‑end news into the notes, but to focus on events where not disclosing would significantly affect users’ decisions.
5. A combined case: going concern, dividends and major non‑adjusting events together
Let’s return to a more complex scenario that combines the ideas in this article. Assume:
- The company’s year‑end is 31 March 2025.
- In April, the company announces that annual profit is reasonably stable, but cash flow is tight.
- In mid‑April, a major customer goes bankrupt, and an HKD 8 million receivable may not be recoverable (this was already analysed as an adjusting event in earlier HKAS 10 discussions).
- In early May, negotiations to renew an important revolving loan fail; the bank demands repayment within six months.
- At the end of May, the board proposes a HKD 10 million dividend, saying it is “a distribution of the 2025 profit”.
- In the same month, the board signs an agreement to acquire a new brand business.
You could break this down as follows.
Bad debts and loan issues: what do they mean for going concern?
- The customer bankruptcy is an adjusting event; the customer’s financial trouble existed at year‑end, so you recognise an impairment loss at 31 March 2025.
- The failure to renew the bank loan and the repayment demand are post‑year‑end events that may directly threaten the company’s liquidity in the next 12 months. If the company has no practical replacement financing, this may seriously shake the going concern assumption.
- Management must reassess: can the financial statements still be prepared on a going concern basis? If the answer remains “yes”, they still need to disclose the related material uncertainty and the response plans in the notes.
Dividend declared in May
- Regardless of how the board describes it (“a distribution of 2025 profits”), the dividend is only declared after 31 March. It must not be recognised as a liability at the reporting date.
- In the 2025 financial statements, it is a non‑adjusting event: disclose the dividend amount, who it is payable to and which period it relates to in the notes. Record the journal entry only in the new financial year.
Acquisition of the new brand business
- The purchase agreement is signed in May, so it is a post‑year‑end business combination, normally treated as a non‑adjusting event under HKAS 10 and HKFRS 3 Business Combinations.
- If the deal is significant, disclose the nature of the transaction, consideration, payment terms and the expected financial impact in the notes, without changing 31 March 2025 balances.
What the full disclosure picture looks like
In summary:
- Main statements:
- Adjust for the bad debt due to the customer’s bankruptcy.
- Prepare the financial statements on a going concern basis if still appropriate, after reassessing liquidity.
- Notes:
- A section on the bad debt and loan renewal failure, explaining their impact on liquidity and any material uncertainty related to going concern.
- A section describing the dividend declared in May.
- A section describing the post‑year‑end acquisition and its key terms and expected effects.
Through this breakdown, you can see HKAS 10 does not tell you to “push every post‑year‑end event into the numbers”. Instead, it guides you to separate: what changes amounts, what changes the basis, and what only changes disclosures.
Key takeaways for students and junior accountants
- When you see any post‑year‑end event, always start by asking three questions: (1) Does it affect going concern? (2) Is it an adjusting or non‑adjusting event for amounts? (3) If non‑adjusting, what do we need to disclose?
- Remember that dividends declared after year‑end are never liabilities at the reporting date under HKAS / IAS 10; treat them as non‑adjusting with note disclosure only, and record the journal entry in the new year.
- For going concern, focus on the big triggers: major losses, loan failures, severe customer or supplier losses, or formal plans for liquidation or major closures; decide whether you only need disclosure, or whether you must change the basis of preparation.
- For major non‑adjusting events, your note should always cover the nature of the event and either (a) a reasonable estimate of financial effects or (b) a clear statement that such an estimate is not yet possible and why.
- When preparing working papers, write out your logic: what happened, when the underlying conditions existed, and how you concluded on going concern, dividend treatment and disclosure; over time, this habit turns HKAS / IAS 10 from “technical rules” into your natural way of thinking about post‑year‑end events.
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