36th Webinar on “Events after the Reporting Period: Adjusting vs Non-adjusting Events and...

Added: 2026-05-13

[00:03:23]Okay. Uh on behalf of the accounting standards board, I extend a warm welcome to all participants to the 36th webinar on the topic events after the reporting period adjusting versus non-adjusting events and disclosure requirements.

[00:03:39]uh financial reporting does not end with the close of the reporting period.

[00:03:43]Events occurring between the reporting date and the date of approval of financial statements can significantly affect the assessment, measurement and disclosure of the financial information.

[00:03:53]Accordingly, the proper evaluation of such events is essential to ensure that financial statements present a true and fair view and continue to meet the expectations of investors, regulators and other stakeholders. The requirements under the IND framework provide an important basis for distinguishing between events that require adjustment in the financial statements and those that warrant disclosure alone. While the underlying principles appear conceptually clear, their practical application often involves considerable professional judgment, particularly in situations involving circumstances, uncertaintities and material subsequent developments. Against this backdrop, this webinar seeks to deliberate upon several important practical considerations, including understanding the distinction between adjusting and non-adjusting events after the reporting period. Evaluating the accounting implications of subsequent events on assets, liabilities, income, and disclosures. Assessing disclosure requirements for material events occurring after the reporting date. and examining practical challenges relating to areas such as going concern assessments, litigations, impairment and significant business development and strengthening consistency, transparency and professional judgment in financial reporting practices. The session has been structured with a practical orientation to help participants better appreciate the application of these principles in real life situations through discussion of illustrative scenarios and implementation issues. The webinar aims to provide useful insights into the treatment of subsequent events under IND and the related disclosure expectations. We trust that that the discussions today will contribute meaningfully to our understanding of these important aspects of financial reporting and support you in addressing associated practical issues with greater confidence and clarity. Thank you for joining us and we look forward to an engaging and insightful session. We are privileged to extend a very warm welcome to our esteemed speaker for today's session CA Pervvin Kumar Sa. We are also delighted to have CA Paris Kumar Chhatta with us as the moderator of this session. Before we begin the technical deliberations, it is my pleasure to briefly introduce him. CA Paris Kumar Cha is a qualified chartered accountant with more than 13 years of professional experience and is currently working as director in the financial accounting advisory services practice of a leading professional services firm. He possesses extensive expertise in complex accounting areas including business combinations, consolidation, financial instruments, leases, revenue recognition, sharebased payments and GAP conversions from Indian GAP to India's IFRS and US GAP. He is actively associated with technical and professional review activities of ICI and regular regularly contributes as a faculty member for professional courses and training programs on Indas and other accounting topics. He has been conducting training programs and technical deliberations for professionals and corporates on various accounting and auditing matters and has also contributed articles to professional publications and newsletters. Over to you Paris.

[00:07:21]>> Good afternoon everyone. So first and foremost I would like to thank our chairman sir and vice chairman sir for giving me this opportunity and it's a privilege and pleasure for me to be part of this session and to act as a moderator. Second I would like to thank each one of you for taking time to join this session. And lastly I would like to thank Rahul G for introducing myself. Uh today's topic is extremely important as I have practically observed many people often get confused while preparing or finalizing the financial statements whether any particular line item is an adjusting event or non-adjusting event.

[00:08:01]As you know this standard is applicable under both the frameworks uh under NDS and AS. So as Rahul has already mentioned we have an eminent speaker Praj who is going to deliver his technical session on this particular topic. So let me introduce Praindi.

[00:08:23]See Pravin Kumar sir is a senior partner in one of the renowned firm in India. He has more than 31 years 31 years of postqualification experience and he is a commerce graduate and hold diplomas in information system audit besides certifications in IFS from UK. He is a member of WASB and earlier he was a member of NACAS accounting standard board and expert advisory committee besides various research groups and committee of Indian C institute. He has experience of working on large number of risk advisory assignments, audits, forensic, fraud investigation and IFS transition for various corporates. He is a speaker at national and international forums on his subject of expertise. He is a faculty with reputed institutes like IMT, NAA, ICI, ICWS, ICSI, ICWI and many more. So list is quite long. I think without further ado, we should begin our today's topic that is event after reporting period. So over to you provin.

[00:09:38]>> Thank you very much uh Paris and thank you uh Rahul. I'm really grateful to the institute for giving another opportunity to share my thoughts. Uh the today's topic is very relevant. uh most of the companies balance sheets audits are going on and uh this can be the uh the best time to discuss this particular topic where uh you know the balance sheet is being made for 31st March um and the audit is going on and very soon the auditors will be issuing their audit reports in some of the companies. So uh a disclaimer first whatever we share in these uh webinars and seminars and uh in these talks uh these are generally our individual uh opinions and u uh these are individual thoughts. they come out of experience. Uh but in case uh anybody wants to take a professional call or needs to take a um decision on how to make the treatment, how to do the treatment, they should uh certainly uh refer to the technical um literature issued by the institute.

[00:10:53]So these sessions are primarily to u share thoughts and u uh you know discuss on various technicalities where various challenges which are being faced by each one of us. So when we deliberate on this topic we will uh keep this in mind that uh I'll be sharing uh thoughts which are my personal thoughts. They do not represent thoughts of the institute or of any organization. This is a disclaimer we give in uh every talk before we give any talk. So um today's topic event occurring are uh after the balance sheet date let me open my presentation and share it with all of you. So maybe Mr. Rahul and uh uh Paras if you can confirm if my slides are visible.

[00:11:44]>> Yes it is.

[00:11:46]>> Okay. So as you can see from um you know the style of uh this presentation uh certainly nowadays uh we take help of artificial intelligence and we get a lot of uh uh interesting data and interesting information and then we start working on uh the information which comes uh from the artificial intelligence tools. But when we apply uh you know the guidance which is there in our practical life we face lot of challenges which we will be sharing.

[00:12:20]So today's uh discussion uh will be in a style of uh storytelling. We will be talking a lot about various case studies. We'll take up various examples.

[00:12:32]we will take the scenarios which have happened actually and we will also take up uh practical challenges which are being faced. So we will be covering the frameworks which are uh accounting standard and indas as well as a little bit of FRS. We will look at this standard from perspective of the management which is the preparer of financial statement. We will also look at it from perspective of the auditors.

[00:12:59]both perspective. We will see we will see how you know these uh uh you know impact uh of these uh events are taken in the financial statements in case they are adjusting events and how the impacts are not taken when there are non-adjusting events and in case there are inconsistencies between the thought process of management and the auditors.

[00:13:26]What steps are required to be taken?

[00:13:28]what steps can be taken uh what should be the checklist for the auditor what should be the checklist of the management. So we have tried to keep this uh uh presentation in a very uh to make it very practical and u you know this is how the whole uh discussion will go on. In case you have any questions, my suggestion will be that please put it in the chat box or put it into Q&A uh section when the session is uh over when I will uh complete the presentation then maybe the institute uh or uh Mr. Rahul or Mr. Parras can share those questions.

[00:14:09]We'll try to address your queries. we'll try to address uh to the extent uh possible. In case we are not aware or we are confused then we will go back we'll look at the literature we'll do some research and we may come back to you.

[00:14:26]So what is the fundamental question here we are trying to uh debate and discuss.

[00:14:34]Basically there can be various situation um uh between the date on which the balance sheet is made and the date on which the audit report is being signed.

[00:14:48]So there can be a situation that uh in between um you know that period there can be a major bankruptcy of one of the clients, there can be fire, there can be legal case, there can be settlement, there can be dividends, various kind of situation may arise. So what uh treatments need to be done um you know in accounting this particular standard which we are going to discuss with you is helping us in uh giving guidance on what treatment should be done.

[00:15:24]To take an example let us say a company is closing their financial statements on 31st of March 202026.

[00:15:33]the board meeting is going to happen or it has happened on 30th of May. So this window of 60 days uh this uh whatever happens in between uh this would require a careful uh evaluation because as per the standard whether it is IFRS, whether it is NDS, whether it is AS you have to keep in mind uh that there there can be a situation you may need to make a disclosure or you may need to make adjustment in your financial statements that can be statement of profit and loss that can be your balance sheet.

[00:16:13]So whether you are preparer or you are auditor, you need to keep in mind that there is an accounting standard within all these frameworks uh which provides guidance on uh on this particular matter. This is a very uh important topic uh you know so there are three different frameworks one is um uh as so we have an accounting standard number four uh which is as per uh Indian gap which is uh used when you are preparing financial statement of a non-corporate entity or uh corporate entity which is below a threshold limit then we have NDS NDS number 10 which is a replica or a similar to IFRS10 uh sorry in AS10 which is in IFRS framework. So the title of the standard is different in AS4 it is called contingencies and event occurring after balance sheet date and then there is uh in NDS it is event after uh reporting period.

[00:17:20]So the scope is uh you know in AS4 is combined treatment of contingencies and subsequent events whereas NDS and IFRS they totally focus on subsequent events.

[00:17:38]So the terminology which we use uh is uh in AS4 it is used as balance sheet date and in AS and if FRS we use the terminology as reporting period. Uh main difference between these frameworks is that in case there is a dividend proposed uh in uh AS or in accounting standards that is recognized as a liability.

[00:18:06]However, in IFRS and Indas, it is not recognized as a liability but is disclosed in the notes. Uh it is believed that uh they become liability only once it is approved by the shareholders.

[00:18:22]So basically uh uh there is uh these standards in they are effective from April 1, 2016 and people who are doing audit of the listed companies they need to keep in mind that uh right now you will be looking into Ind.

[00:18:41]So basic difference between AS and Indas was related to dividend.

[00:18:47]Okay. So uh let us understand this uh uh concept of event occurring after balance sheet uh after reporting period. They can be favorable or they can be unfavorable but they will be there will be events happening between end of the reporting period and the date when your financial statements are approved by the board of directors. So there can be two situations where one situation is called adjusting events. So and the other one is called uh non-adjusting events as you can make out from the language of this term. So there are u there are some events for which there will be adjustment made in the financial statements and there will be some events for which the balance sheet will not or the financial statements will not have any adjustment.

[00:19:56]So um which are uh called the adjusting event. So basically the crux or the key point is whether there are evidence of conditions that existing that existed at the end of the reporting period and there are various example. So in case there are uh conditions which came uh after the uh reporting uh period date or there is a uh what we call that conditions that arose after the reporting period date those will be non-adjusting. So let's look at example of both. So uh there can be a court case uh and there can be uh confirmation of a present obligation. So for that court case would be there on 31st of March. So for all our discussion today we will um take an example of 31st March as the closing date. uh this date can be different in various companies. In some of the subsidiaries which are foreign companies, there can be a December 31st can be the uh uh reporting period date or it can be July, it can be any other date but for today's uh uh session for the sake of simplicity and for the sake of understanding we'll take 31st March.

[00:21:30]So let us say there was a court case which was going on and between 31st March and uh the sign of date approval by the management in case there is a settlement of uh a court case. So that means uh there is a case which has been decided. Second example can be uh that a customer can become bankrupt and you get an information after 31st March but before the reporting uh before the approval date. Third example can be a determination of purchase price of asset acquired. So asset were acquired before the year end but price was not clear but during that window there is a clarity on that price then there can be discovery of fraud there can be discovery of errors. So in case you find that there was an error in the financial statement that goes into adjusting event because the conditions were already existing. U of course when we will uh do that adjust try and that materiality will also play an important role there. So for the timing let us understand which are the adjusting events which are the non-adjusting events. So determination of bonus or profit sharing amount between uh 31st March and the approval date that is an adjusting event before because the conditions were lying therein.

[00:23:01]So what will be your treatment? In case there are uh adjusting events, you will make adjustments in the financial statements. But what what if the condition arose after um you know the balance sheet date or after the reporting period. So that means for example there is a uh you have an investment and there is a decline in the market value. there's a major business combination which come into play. The condition arose after the reporting period. Um you know the business combination uh came after that or a restructuring plan uh was announced after 31st of March.

[00:23:46]Then any clam u you know fire or natural calamity uh it uh you know had destroyed the asset. So conditions arose after the reporting period abnormally large changes in asset prices. So that can be a situation but all these will be after the reporting period. So do you do not need to adjust uh and you only need to make a disclosure only if they are uh you know material items. So the key question which you will be looking into uh will be whether the conditions were existing at the reporting date and uh whether the condition arose after the reporting date. So reporting date uh we had taken an example of 31st March.

[00:24:42]Let us look at the uh practical side of it. As you are aware that when COVID 19 came so there were companies which were doing um you know a reporting on 31st December and 2019 was the uh year end and there were companies which were doing reporting on 31st March 2020. So what happened um that in on March 11 uh WH declared that uh COVID situation is a pandemic and then India did a lockdown on March 24 March 31st. These situations were there but they were after December. So in case your company was closing your financial were closing the financial statement on December. So these events were after the uh reporting period but for the companies which were doing reporting on March it was before that. So uh for December end uh period companies it was a non-adjusting event because the condition arose after December uh you know after the reporting date and what treatment they did uh basically disclosures were required and extensive disclosures were required but for those companies where um the closing was being done on 31st of March and the conditions were already there when you did the closing and companies had to make an assessment whether it will have an impact on their financial statements. So for example if you look at the balance sheet of reliance industry they had a huge loss provisions they made uh extensive uh notes and the approach was that conservative uh provisioning was done.

[00:26:40]So in banking sector the Reserve Bank of India said that uh no dividend will be declared by the banks. Uh so but the provisions were being done by the banking industry.

[00:26:52]Now look at another case study. U this is a classic example when we will have an adjusting event. Let us say there is a company called ABC manufacturing limited. They were having a financial year closing on 31st of March 2024 and there are trade receivables which were to the tune of 200,000.

[00:27:19]They were shown in the financial statement at full value. However, on April 20th uh this uh client or this customer this was declared insolvent.

[00:27:34]The board of board has done the approval of a financial statement on May 25th. So you have a window between 31st March and 25th of May. There is a window of time. In that time uh you know this uh this particular customer has become bankrupt.

[00:27:59]So the conditions were already existing. So that means this XY Z limited was already in a financial difficulty and uh uh when when um you know the investigations were done the this company or this customer was already struggling uh for months before the year end. So the conclusion was that uh basically the bankruptcy provided uh evidence of a condition that existed at 31st March.

[00:28:36]So what treatment was required? This will be classified as an adjusting event because the conditions were pre-existing and there will be an accounting entry which will be done and there there will be a disclosure uh given there. So let us look at what is the key principle uh you know which is given in India uh 10.

[00:28:58]Let us say this company was applying Indas. The settlement or uh revelation after the reporting period provides additional evidence about those conditions which were already there. So basically this will be uh an adjusting event. And my next example is a classic case of non-adjusting events.

[00:29:21]So let us say there is a company called DEF uh year end 31st March and factory is having a carrying value of 15 cr which is PPE property plant and equipments.

[00:29:37]On 15th of April, a major fire broke out and there was an insurance coverage but that insurance could cover only 10 cr whereas the loss was approximately 15 cr and the board was approving the financial statements on 28th of May. So let us do an analysis of this particular situation. Was there any condition which was pre-existed on 31st March? The answer is no. Uh the factory was operational and it was in good condition. So that means those conditions were not there. Now if preconditions were not there, what will be the classification? It will be nonadjusting events. So basically you have to test it on materiality levels because this is a significant one. This is a highly material. It requires um you know assessment and then a disclosure will be made in the financial statement.

[00:30:44]However adjusting it is not an adjusting event. So your financial statements will not change. Your numbers will not change. You will not book the loss on 31st uh March. But you will make a disclosure in the financial statement.

[00:30:59]What will be the disclosure? It will be the nature of event that there is a fire which has happened on 15th of April.

[00:31:07]Then what is the estimate of your financial impact? You may say in the notes that although the loss is 15 cr but we have an expectation the company has an expectation to recover 10 cr from the insurance company there is a potential loss of 5 cr also because it is a significant one you will need to make an assessment on going concern we'll not be touching on that point today but uh in the practical situation You will also be looking at uh the going concern issue. Then there is another case study. Let us understand the nature of uh adjusting events.

[00:31:53]Uh the fact pattern is let's say there's a company called GHI Limited.

[00:32:00]year end is December 31st, 2023 and there's a legal case where u you know the lawsuit was filed in June 23.

[00:32:13]What we are doing is closing on December 31st, 2023.

[00:32:18]The suit was filed in June 23 and uh the material which was sold in that year itself and there is a provision which was made uh of around 50 lakh rupees which was based on lawyers estimate.

[00:32:36]So now the court settlement was done on 15th of February to 2024.

[00:32:44]So that means 1.2 2 cr. The court says that the damages will need to be paid and uh this was done before the approval of financial statements which were done on March 15th. So when you are doing an audit and uh or you are part of the management which is preparing the financial statements, you need to keep in mind that where the conditions were pre-existed on the date of financial statements reporting period. So in this particular case the liability was there um you know because the lawsuit was filed in June 23 itself the outcome of the court case came in the month of February only. So that means before you are putting your uh signatures on the financial statement as a management or before you are giving your audit report uh you are aware that there is a uh uh court order which is saying that okay 1.2 uh cr penalties need to be given. So the question which is asked that what you need to see is whether the obligation existed at December 31st.

[00:34:01]The answer is some people may say no the obl you know the amount was not clear on 31st March uh 31st of December but actually speaking when the u the answer is that that obligation was there because the defective products were sold in 2023 and then there was a complaint which was filed in June. So that means there was already a condition which was existing.

[00:34:31]So now the settlement u you know which is additional evidence which you receive and there is a code judgment of 1.2 cr.

[00:34:40]So that means you got a confirmation of the amount for which a condition was pre-existing.

[00:34:49]So this will be adjusting event. So what you will need to do original provision was 50 lakh but your core settlement is 1.2 cr. So this additional provision will be required and you will be doing um you know your accounting entries accordingly.

[00:35:09]But you will also need to make u proper disclosure that this is according to uh you know the events happened after balance sheet date or after the reporting period.

[00:35:28]Now let's look at this particular standard NDS1 and how the standard has given guidance clause by clause. Let's look at that. So um paragraph one or initial paragraphs they say that uh you know when an entity should adjust financial statements for event after the reporting period and the disclosures that the entity should give uh in the financial statements. Then in par 8 they have defined what are adjusting events and par 10 what are uh non-adjusting events. We had a discussion on that. There can be example that code settlement has done, bankruptcy have been done or sale of inventory after the reporting period. Uh uh any any cost of asset purchase or determination of profit sharing of bonus payment, discovery of fraud, errors, these are all adjusting events. And for non-adjusting events, there can be decline in the fair value of investments.

[00:36:34]There can be a major business combination which might have happened.

[00:36:38]There can be disposal of uh a subsidiary. There can be restructuring. There can be uh destruction of asset. We took an example of fire.

[00:36:52]There can be abnormal changes in the asset price.

[00:36:57]And there can be uh you know uh company might have entered into a significant commitment. So what are the critical timelines? um you know the 31st March 2024 is the date of financial statements and u uh board of directors is the when they are approving that is also a critical date u when the financial statements are issued uh for the public or the shareholders and then the events between date of approval and date of financial statement these are the critical dates which need to be taken into consideration.

[00:37:41]Then paragraph 17 of NDS it talks about uh what disclosures are required and then paragraph 21 talks about materiality. As you are aware that as per the framework of India's uh accounting standard framework uh there are key characteristics which have been defined in the framework itself which says that materiality is one of the key characteristics of your financial statements. Um so this particular standard plays a very important role and u uh materiality is uh critical when you are doing an accounting or preparing the financial statements. So uh if if non-adjusting events are material above that material level materiality level then uh there can be um there can be impact on the users of the financial statements. So the framework itself defines that u why the financial statements are prepared whether it is the balance sheet whether it is statement of profit and loss or whether it is cash flow statements. The main objective is that the users of these financial statements should get answer to the queries or look whatever information they are looking at. They should be able to uh they should be able to help uh you know in user taking a decision. User can be internal. User can be external. Internal users will include the management or the people who are running the organization. Employees of the companies, auditors, internal auditors of the company. External users can be the bankers, the regulators, the tax department or investor or shareholder or a person who is trying to get uh into uh transaction with the company. All these users they need to get some information from these financial statements and these financial statements should be able to help uh the user in taking those decisions. So event occurring after reporting period but before approval of the management in case those events are material then there has to be a uh disclosure of that because a user u will need to know what all happened after 31st March and between the dime uh you have approved uh as a management.

[00:40:20]So what you need to make disclosure what what disclosures are required the nature of the event and the estimated financial impact uh because ultimately uh uh what will user do of an information which does not have any financial uh numbers behind. So you say that okay the company had a big loss after 31st March but how much is it going to impact uh significantly on the decision. So this this banker is trying to give uh uh you know loan to the company or a company uh external party wants to do a funding or they want to get into a transaction with this company. What will they do if there this information in terms of numbers is not available. So you have to give an estimate of the financial effect. Then uh the dividends uh there has uh uh there's as I had mentioned that there's a significant difference between as and uh whereas when you are preparing financial statement as per the accounting standard 4 you will uh be treating that dividend as a liability but when you are preparing your financial statements as per NDS you will be treating u only the disclosure part you will be um uh making a disclosure only. So then there are example that okay dividend of 10 rupee per share u you know is being uh is not recognized as a liability but also you know in case uh there is a the event which has happened after the reporting period is so significant that it is impacting the going concern. So you need to uh you need to make uh an assessment of whether this is going to have an impact on the growing concern.

[00:42:19]So we have uh uh we have an example that financial statements were approved but for issue of board of directors on May 25th, 2024.

[00:42:29]Subsequent to the year end on April 15th, the company's manufacturing facility was completely destroyed by fire or uh you know the companies expecting to recover this much amount uh like we shared in the previous example.

[00:42:46]So like I had mentioned earlier there are a key u you know differences between AS4 Ind.

[00:42:58]So basically the major difference is the dividend. Uh in AS4 it is recognized as a liability whereas in Indas it is not recognized as a liability but disclosed as the notes. Uh events between balance sheet date and date of approval. These are the two cutff dates for applicable for both uh the standards. Uh there is absolutely same application for entering financial statements. The AS4 does not specifically uh address the issues but India 10 clearly say that they are impact this these uh this standard is applicable on uh interim financial statements also. So uh there are general disclosures in AS4 which you are required to make but in Indas there are specific disclosures which are nature and financial impact estimates.

[00:43:55]So basically uh the the scope of the standard in AS4 it is combined along with contingency whereas in Indas this particular standard is solely on subsequent event.

[00:44:12]Then there are some example which we have given uh related to transition. So we move to the next uh slide where you know how practically this standard can be applied.

[00:44:28]There is a decision tree.

[00:44:31]So basically what you need to do is to see uh whether there is a uh there's an event happened at the end of reporting period and between uh end of reporting period and date of approval by the board.

[00:44:49]If no event has happened during this period it is fine.

[00:44:56]If some event has happened then we go to the next step.

[00:45:02]Next step will be to see the event has happened but whether the conditions were existing at the reporting peri uh period.

[00:45:13]If yes then it becomes an adjusting event. If the conditions were not there then you move further.

[00:45:23]Then you say that whether it was material item.

[00:45:27]If the answer is yes then it is it requires a disclosure.

[00:45:33]If say no it is not it is below materiality level then no action is required. So now someone can put up a question and say what is materiality level. So for that uh it's it again there is a subjectivity involved. Some people can say that okay 300 cr amount is a material item but the the other person may say that okay the company size is uh uh 75,000 cr and within that 300 cr maybe below the materiality level. So uh you have to decide what is the materiality level and many times the people say that who decides the materiality either uh management or the auditors or who who is the person who decides what is the materiality level. So as you can uh as you might have observed in the recent guidelines given by the Nafra uh auditors need to communicate with those charged with governance and although this uh this requirement was already there but now it has been amplified. It has been um clearly indicated that those charged with governance will constitute uh you know the portion of the board and the management and independent directors so that those those people who are charged with the governance will have an interaction with the auditors.

[00:47:06]During that interaction, during that communication, the auditors will say that okay when we are doing the audit, we have decided this much is the materiality and the people who are those charged with governance. Uh you know those people who are charged with governance may say that okay we agree or we do not agree. We want your materiality levels to be low or what is the what is the basis of your calculating that materiality? The auditors may need to say that okay we have identified that in your company there are three ways to look at the materiality the way of uh uh your profit your revenue base or your asset based.

[00:47:50]So what is the basis which we have taken? We have calculated the materiality level at each and we have taken the most conservative and then we have taken some haircut also. Then uh you know all those uh discussions will be documented will be done with those charge with governance and that's how you will reach to a materiality level and that level you will discuss uh when you will keep um you know when you will try to come to this decision tree on this particular uh standard whether there was a materiality above materiality um you know the event has an impact then you need to make a disclosure.

[00:48:35]Now there's an interesting situation which is very very practical uh and this scenario can be really complex. Let us say there's a breach of loan convenience and uh let's took an example and let's take an example and try and understand this. So there is a company JKL we say that the name of the company the year end is 21st 31st March 2024 there's a long-term loan which is going on and it has a a condition attached with the loan that your debt to equity ratio will be maximum 2.2 two 2 is to1.

[00:49:19]Now as on 31st March the this condition has got breached and the ratio has come down to 2.3 is to1.

[00:49:30]Now this is as on 31st March the loan the condition of the loans have breached the impact will be uh you know the loan which is shown as non-current will become current liability.

[00:49:50]So now the board is approving this financial statement on 30th of May 2024.

[00:49:56]31st March and 30th May there is a window in between.

[00:50:04]In between that window if the lender has done approval that okay it is fine then you can continue with the long term but if they have not done then it becomes a complex situation.

[00:50:19]So your uh just give me a second.

[00:50:50]So if the loan is um there's a breach in the uh you know the loan components so there is a significant deterioration in liquidity ratio and this may also arise um a question related to going concern.

[00:51:11]Now if the lender waves the breach before approval then it is rectified and loan remains non-current liability. But what if the waiver is not received before the approval then it is a it is a challenge in front of the management and in turn in front of the auditors.

[00:51:36]So let us say if the waiver is received before 31st of May then it is a non-current liability and no adverse impact. But if the waiver received after 30th of May then probably you will probably you will be uh required to look at it whether this will be shown as a current liability and it will have a significant deterioration and if there is no waiver then uh of course there is a current liability and uh uh going concern issue might be there but you will need to make a disclosure u about that this you know this loan loan conditions or loan convenant has not been uh there is a breach in that.

[00:52:22]Now there can be a situation that the management may not agree with the auditors and uh u you know the there may be a requirement of giving a qualification or modifying your report.

[00:52:37]Let's look at that as a case study practical example. So let us say the company is M limited. The year ending is 31st March 2023.

[00:52:48]A lawsuit settlement happened the settlement happened on 25th of April and board is approving in May.

[00:52:58]So between March and May there is a settlement which has happened which is 25th of April. So management saying that okay this is a non-adjusting event but we will make a disclosure in our notes. Now auditor will need to uh evaluate a the materiality level and if it is above materiality then there has to be a modification because the accounting standard has not been complied with and then there will be a uh drafting basis of uh u you know modification in the report and then what is the modification?

[00:53:41]So the impact on the users of financial statement they will understand that there's a profit which has been overstated.

[00:53:51]There has been a net worth uh impact on the net worth. There's an impact on the debt equity ratio and then there is a uh you know potential impact on the decision which investors are going to take.

[00:54:07]There can be a situation that uh the auditors may need to give emphasis of meta paragraph. So please do not get confused if the accounting standard has not been complied with.

[00:54:22]So according to the standard the preconditions were existing and you will need to make uh an adjustment in the financial statements but management is not doing that. It is a case of modification or a qualification.

[00:54:42]EOM paragraph is not a replacement of a qualification.

[00:54:47]So when to use EOM paragraph this let us look at that as a practical aspect.

[00:54:56]A matter is appropriately presented and disclosed in the financial statement.

[00:55:01]That's the precondition. Whatever treatment is suggested by the standard that treatment has been done by the management but it is important for users to have an understanding of this and your opinion is not modified. That means you're not saying that they did not comply with the standard. They complied with the standard but you as auditor feel that it is important for them to know that uh this event has happened after the reporting period.

[00:55:32]Let's look at an example. Let's say PQR limited the year ending was 31st March 24 and major customer um you know they terminated the contract.

[00:55:46]Let us say the management and the auditors they agree that this is a non-existing event because the reason of uh terminating the contract and uh termination they all occurred after the balance sheet date after the reporting period. So management appropriately made a disclosure uh with wherever the financial impact was required. If it was an adjusting event then impact has been taken.

[00:56:15]So then the auditor feels that okay this requires uh emphasis of meta paragraph auditor may include a comment.

[00:56:30]So what are the benefit of showing that as a giving that comment in their report is there's a separate paragraph.

[00:56:40]It is immediately after the um you know opinion the what are the benefits? It highlights that there's a critical information which you need to focus on which you need to look at and it will ensure that the user will not miss on this particular aspect and uh but still the opinion uh that the financial statements are showing true and fair view in case of uh you know the profit or loss of the company uh for the result for the period ending on that date and in case assets and liabilities uh as on the balance sheet date.

[00:57:24]So the opinion remains unmodified and it protects both auditors as well as the users.

[00:57:33]Now what are the responsibility of the auditors? Let's look at uh standard on auditing 560.

[00:57:40]It says that auditors are required to obtain sufficient and appropriate audit evidence and we will see how we can collect sufficient and appropriate audit evidence in case of events occurring after reporting period.

[00:58:00]So uh between 31st March and 30th of May when the approval has happened. So basically auditors are required to collect uh or obtain sufficient and appropriate evidence and respond appropriately to the fact that became known to the auditor.

[00:58:24]And it is very u uh interesting uh that how uh you know even if the auditors has given their audit reports. If auditor come to know about uh you know this thing that okay uh I have given the report uh I have signed off the report and next day I come to know oh there was some significant event which has happened but we have not taken into consideration what should I do now. So we will discuss both these situations.

[00:58:55]So period one is uh financial statement date to auditor's report date.

[00:59:02]So uh the auditor's duty is to perform those audit procedures and what are those procedures? Let's look at very briefly uh inquiries and uh latest interim financial statements you need to look into. You need to read the minutes of the shareholder meeting, the board meetings. You need to inquire about new commitments, borrowing, guarantees, acquisition or uh uh developments related to contingencies, uh unusual accounting adjustments, event affecting the measurement basis. All these need to be seen by the auditors as mentioned in standard on auditing 560.

[00:59:45]But if you have already given the report what you should give uh basically the general rule is that auditors are not supposed to carry out audit procedures after they have signed off but there can be an exception. Uh so in case they wanted to make a modification. So what auditors need to do uh first they need to discuss the matter with the management and those charged with governance and determine if the financial statement needed an amendment.

[01:00:18]If they make those adjustments then issue the revised report. If the management does not um make an amendment then take actions to prevent reliance on auditor's report and then notify the management or the those charged with governance. So what will be done? Uh the auditor shall request a representation written representation that all events occurring subsequent to the date of financial statements uh you know they have been adjusted or closed this statement they have to take from the management how will they do how practically is it being done so when you are about to sign the balance sheet the financial statements on the audit boards just before that you take this repres representation and this representation comes and then only you get a uh you know your comfort your evidence your audit workpaper file should carry that there was a communication done and there was a response which was received.

[01:01:27]So during the course of audit uh in order to u uh comply with the requirement of this standard the auditors may ask uh uh some questions there are some practical steps which we have jotted down. So you need to uh do inquiry from the management. You need to review the board meetings. You need to review you are the auditors. You need to review uh interim financial statements.

[01:01:55]You need to take uh lawyers confirmations, bank confirmations, subsequent collections, review of the contracts, insurance claims. And then auditors need to document all of these.

[01:02:09]what procedures they performed and what is the extent of those procedures. What were the events which were identified and whether uh they were classified as adjusting or non-adjusting.

[01:02:23]What response will you received from the management and what is your conclusion?

[01:02:29]Uh many times we see in the audit work paper file that the conclusion is not mentioned. So whatever your procedure you have done you will say that okay we communicated uh you know uh we checked from the management and management said that okay there was no event and they leave it there but you have to write the conclusion also hence uh you know there is no impact. So this is something uh the adequacy of disclosures related conclusion will be there.

[01:03:03]Then which date you carry out this procedures.

[01:03:10]So you need to be uh careful.

[01:03:13]So uh which are the evidence which you as auditors need to take. There are some examples which we have given. Uh one can be the government related uh governance related documents for example the board meetings, audit committee minutes uh meetings and minutes of uh shareholders, management, audit committee, board of directors, the minutes of those. Then your financial informations, management accounts, trial balance, cash flow, uh you know bank statements, all those need to be taken. Then your legal and compliance related your opinion from the lawyers and in case there are any judgments uh regulatory correspondents or you know any contracts which got terminated and then your operational evidences like for example insurance claim related or major sale purchase agreement. So those kind of things need to be taken. Always remember that external confirmations are treated as good evidence and internal confirmations are slightly lower in hierarchy.

[01:04:22]So what is critical is that um you know information on subsequent event should be collected as close to the audit report date. So uh because there may be a situation that management has given you uh you know a letter conveying about subsequent event uh no subsequent and after that and before you sign the report there can be more event. So you need to uh whatever is practically um you know nearest date you need to take those kind of uh you know confirmations.

[01:05:01]Now some people say that there is a possibility of dual dates. Um if you have a management has approved you as auditors uh need to u sign off the financial statements and before it gets circulated you come to know that there is something happened. Then there is a situation that you can have a dual dating format. That means on May or for an example May 25th you might be uh doing the audit on May 20 May 30th 5 days later you may look into the subsequent event adjustment as well. So some disclosure has been made. So that means let's look at scenario and let's look at an example.

[01:05:54]original audit was completed on May 25th.

[01:05:59]Some court settlement which is a very significant amount for that company. It happened 3 days later May 28th.

[01:06:07]So management says that okay we want to make an amendment in the financial statements.

[01:06:14]So there are two ways the auditors can respond to this. One is you extend your audit procedures and you say that okay we will issue an audit report which is dated 30th of May.

[01:06:29]Second is for we will not uh extend our audit procedures.

[01:06:36]We will say that okay for all these audit procedures we concluded on 25th but only for this particular note we are having a different date. So that is u you know your dual date. So basically what are the procedures which are required for auditors to give the dual date.

[01:06:59]So basically uh in general audit you have done all the financial statement items all the events and you have signed on 25th of May and there is a full responsibility on you. But if you are doing specific event on May 30th then your responsibility is limited to that disclosure only.

[01:07:22]But basically u you know practically very few cases are seen where dual uh reporting is done. Um whereas uh you know when there are multiple subsequent events you're not supposed to do um dual dating. You can do only uh complete uh uh your extend your audit procedures and issue a report on the extended dates or where the amendments are affecting multi multiple areas then also you need to be careful about.

[01:07:54]Now there can be a situation that okay as an auditor you are saying that this needs to be adjusted management say no we will not do an adjustment. The dilemma will be that uh you know the issue is significant above the materiality level.

[01:08:13]So basically the responsibility of auditor is uh under standard on auditing 560 you will need to modify the audit opinion and uh uh you know you need to ma you need to advise the management and those charged with governance to not to issue financial reports to the third party.

[01:08:40]So that means you have done the audit in the previous example 25th of May on 30th you come to know that there is something which was which is um subsequent event but requires an adjustment. So what do you do?

[01:09:01]Uh first of all you request the management not to issue these financial statements and if they are ignoring then please notify in writing to them even through the regulatory authorities like SEB ROC and stock exchange and also give public notice if financial statements have already been circulated and also go uh take uh legal advice and if your Um you know you have not yet issued the report then you document that there is a disagreement communicate with those charged with governance and then issue qualified or adverse audit report and then uh there are examples for notification letter to the uh you know board.

[01:09:54]Now let's look at what are the practical challenges which we face uh when you know we are dealing with this particular standard and the challenges can be on the management side it can be on the auditor side. So basically LODR requires you to uh complete financial statements uh prepare get them audited and uh submitted and then uh you know generally the audit report date is very quick.

[01:10:25]So the challenges in front of the management is that uh there's a time pressure especially for the companies which are having multiple subsidiaries or multiple uh components. There can be a time pressure. Um information gathering might be a big challenge. they they may struggle with getting um you know dates appointments from the independent directors to carry out those board meetings and their you know subsequent events uh there can be so many of them because it's it's it's quite extensive especially for the large companies and uh because the timeline is uh limited there's a challenge in front of the management to know that how to um you know make assessment of whether it is an adjusting event or a non-adjusting event. Similarly, in front of the auditors there are challenges related to compressed timelines. Uh the evidence which you uh try to get you're not getting it. Lawyers confirmations are taking your time. U management is busy in closing their financial statements, managing the board meetings. So how will you have a discussion with the management and how uh the documentation will be ensured nowadays? Um you know um you have to do um archival of your audit workp papers within a very small time. Uh and the regulators are expecting that you will finish everything and uh only after the after the signing you will only be collecting the papers and putting them in order. So you will not be in a position to do any alteration in your soft files whether it is MSXL file or word file or if you are doing audit under software you will have a challenge.

[01:12:25]So how you as auditor will uh so this is the challenge in front of you that your professional skeptism will also come into play.

[01:12:36]So what are the best practices? How to address these timing challenges? Both management and auditors need to plan well in advance. You plan your board meetings. You plan your u you know interim information well in advance.

[01:12:50]Circulate those confirmation in time and then um you know identify those events and discuss those events in the management meetings and um auditors may use the technology for faster documentation review. There are tools available. So you have a contract of the company which is 600 pages. Put that into the tool. Of course, it has to be within a um you know it cannot be a public tool uh because of the confidentiality issue but you have to have your own tools uh which where the data remains with you only within your server and the tool will go and look into the contract and will throw up the items which needs um which might need your attention. Then there are uh some gray areas. There are many places where the judgment is required or the estimation is required. Uh because the subsequent events whatever is happening it's not crystal clear whether it is adjusting or non-adjusting.

[01:13:57]For example, there can be a gradual deterioration uh you know in the customer. uh there can be slowdown uh in their position and uh stress is there and bankruptcy is filed but not yet decided uh whether it will be adjusted or adjusting event or non-adjusting event.

[01:14:19]So there will be complex situation.

[01:14:22]Similarly, lawsuit settlement uh long pending suit the lawyer say there's a 50/50 chance provision has not been made whether it is adjusting or non-adjusting. So what do you do? Uh you know you need to document um you know when this uh issue started developing when this financial difficulty started then what are the payment delays and how the credit ratings have gone up and down in case of customer bankruptcy in case of inventory. So what were the market conditions whether they were existing before or uh later on? What were the trends of pricing? How the technology uh you know uh uh you know developed during the period then what are the honorous contracts? Then asset impairment and tax assessment. So all you need to see is uh a carefully um you know uh designed audit workpaper. Uh you will have to keep in mind one concept is that u management bias and auditor's role to carry out professional skeptism.

[01:15:47]You may see that uh management may have a bias uh in you know that okay they may not like to report in case there are any loss in case there are convenient breach they may not like to disclose or they may like to reduce um the bonus amount or market perception related issues. So the auditor will need to apply the professional skepticism and need to see whether management biases are there or not. So what are the uh best practices?

[01:16:25]Document the timeline of the events.

[01:16:28]Gather uh latest evidence like emails or analyst or any reports which have come out.

[01:16:36]Do consult um do take professional consulting. If you have your own firm then go to the quality and technical team. If you do not have then maybe take an external consultancy from an expert on those areas. Maybe go to a lawyer or check uh with an expert and then um you know you need to understand how the evidences are being presented to you and uh see how the disclosures are being done by the management.

[01:17:10]Then there are there can be challenges related to uh unforeseen circumstances like for example the pandemic u when it happened and uh how the companies were looking at because at that point of time there was no certaintity there was no clarity how much uh will be the lockdown period and how this is going to have an impact on my industry various industries and various u uh uh you businesses they faced going concern issue. So basically you need to have a disclosure which will define and which will explain these kind of uncertaintity and uh in future if if a situation like COVID arises again you need to document whatever the management is thinking you need to consider industry guidance. A lot of guidance come from uh different institutes and uh you focus on the transparency.

[01:18:15]Now in the coming age in the present age uh when the technology is improving it's a significant change which is happening in our industry artificial intelligence is there and u use those uh you know approaches use those tools modern approach is that your uh even your article training can sit on the artificial intelligence tool uh and can gather the information about the company and the events which have happened.

[01:18:48]There are data analytical tools. There are um you know management systems which can provide uh a lot of information and there are uh communication platforms. So you have WhatsApp groups and you have uh MS teams where quickly the information can go to each one of the people. Then uh there are some use cases which are very very specific uh analysis of receivables. Uh legal matter tracking related tools. Then market data integration tools. But please uh be careful uh you know these tools when they provide the information there can be hallucination.

[01:19:27]Uh there can be um you know detailing which uh which are excessive detailings.

[01:19:35]But many places you may need to have a management uh uh judgment. You may need to apply your professional skeptism. You need to doubly sure the quality of the data which you are receiving. There are there can be false positive and false negative. You also need to be careful about the cyber security. uh many times the emails which you receive may appear to be email coming directly from the customer but there can be uh those emails can be sent by somebody else using the same email id. So over reliance is uh something which you should avoid when you're using the tools and uh uh understand that the technology has both kind of uh risk and rewards which are there for you.

[01:20:27]future trends like um you know when you're looking at um um these events which are happening uh the machine learning or artificial intelligence can throw up that okay there may be a situation uh there can be a um you know potential significant event subsequent event which might be there uh there can be uh immutable audit trail which might be there uh your natural uh NLP PS the natural data processing will be there and your continuous auditing is also one of the uh change which is happening in the scenario.

[01:21:06]Let's look at globally how the situation is changing. uh SEBI has issued circulars and uh there's a lot of enforcement if if I have to mention about uh this Nafra circulars uh communication with those charged with governance there's a lot of amplification lot of clarity on how uh you know you need to communicate with the management communicate with those charged with governance what can be the issues and u there can be u so if you look at uh enforcement action actions which have been taken by Nafra. So uh whether it was failure to identify major customer bankruptcy or inadequate disclosures of COVID or going concern assessment not updated. So these were u you know the they have put penalties and uh uh warnings and um some penalties have been put on them. So best practices recommended uh for regulators also that uh you need to look at the specific entity wise uh it cannot be you know generic situation for everyone. Uh quantification might be um different for different entities. You need to connect the dots. Uh every unique uh entity has or the auditors may have unique situation. your timelines uh need to be kept in mind that these people are doing jobs and some people are you know uh I don't know how the answer of this will come but at some point of time some companies some audit forms have started archiving um archival of the workpaper on the same date when they are doing the uh uh closing the audit but may not be possible for all the audit firms.

[01:22:58]So uh this particular standard u you know requires um a focused attention of the auditors and uh there are notifications by ministry of corporate affairs. Then there are uh ISP projects and updates uh institute has issued educational material and then there are other topics on which we can have discussions.

[01:23:25]So to summarize what are the key takeaways for the management please uh manage your timelines accordingly. Uh your board meetings need to be defined well in advance. Uh you have to have a systematic process in case any significant event happen u you know or subsequent event happen there has to be a method through which it should get escalated quickly. Theication should be quick, crossf functional and the disclosure should be qualitative. It should be should be having uh complete details and also you need to understand there may be some uh subsequent event which may have an impact on going concern and uh you need to involve and engage with the board members. Uh and similarly for auditors you need to have your procedures which are adequate. uh your professional skepticism need to be kept in uh mind. You cannot just rely on the information which is coming to you directly from the management. Always remember that your evidences need to be sufficient and third party evidences are better evidences. Keep in mind please document thoroughly whatever you have received whatever audit work paper you are doing whatever uh you know uh decision you are taking why you are taking that decision and your communication to the uh management and to those charged with governance should be very clear this is my materiality level I want to know what significant event have happened uh events have happened uh after the reporting ing period. I need to know that you know this whether this is adjusting or non-adjusting and I am sure that this is an adjusting event and if you are not making an adjustment in the financial statements I am going to put a comment in my report as a modification and I will also give a basis for uh this modification. Also auditors need to remain updated. Use uh artificial intelligence. Use chat GPT and tools to know what all is happening in addition to whatever audit procedures you are doing.

[01:25:38]The golden rule you need to remember that whether the conditions were existing I'm talking about this particular standard. If for that u uh subsequent event if the conditions were existing then there will be an adjustment. If the conditions were not existing and if it is material then maybe a disclosure and when you are in doubt please take consultancy. Uh you can take internal consulting consultancy you can take external. So uh please avoid uh you know avoid doing these procedures quite early uh you know a week before the reporting date. No, it is not advisable. Uh you please uh uh if you are confused and if you feel that regulators are uh being unreasonable but uh please entity specific uh documents need to be prepared uh you ask your team to prepare the documents thoroughly and if you are taking aggressive calls please uh put it in the memo why you are taking these kind of calls what is your base for that and Because management wanted this is not a reason. It's not a reason that because management wanted to show this much profit. This is not a reason. Your reason should be coming out of the standards that accounting standards allow this or doesn't allow this. If both positions are allowed by the accounting standards, you can take that position.

[01:27:12]And you also need to remember that the framework of accounting standards.

[01:27:17]There's a critical and very important characteristic is called consistency.

[01:27:22]You need to maintain that consistency period after period after period. And do not ignore the small events. subsequent event may have a significant impact but uh um you know whatever uh small or large you do not ignore and do not overly uh you know rely on the inquiry only. I asked from the management they said this and I uh agreed challenge this and collect evidence uh related to that.

[01:27:51]So this is uh about uh subsequent event after reporting period.

[01:27:57]uh the core principle is um you know uh whether it is uh the conditions were there or condition arose after this there can be adjusting events there can be non-adjusting events there are standards which are dealing with it indie 10 AS4 and then for auditors you need to keep in mind that there is a standard on auditing 560 critical timelines March 31st First if it is a closing case then board approval dates whatever happened in between that is a uh critical period for this particular standard. Always remember that dividends um you know there's a difference when you are dealing in AS4 uh they are treated as liability and when you're dealing in India 10 it is not treated as liability but a disclosure is made. Also remember that whenever there is a subsequent event there can be an impact on the going concern and also do not miss out on this loan convenent breaches. So this is something which is u uh you know critical. So uh I stop my presentation here because paras is visible now and I believe there are a lot of questions uh which are which need to be answered.

[01:29:22]Yes, >> thank you so much sir for such an insightful session and I think you have covered more than we expected. You have covered AS4, Indas 10, I10 and SA 560 as well. So yes, I have received some queries. So can we discuss?

[01:29:39]>> Yeah, please.

[01:29:40]>> Okay, just give me a second.

[01:29:47]Okay. So question number one is an entity completed its year end inventory count on 31st March 2025 before the financial statements were approved. Management discovered that a significant quantity of inventory counted at year end had already been damaged prior to 31st March 2025.

[01:30:09]Although the damage was identified only in April 2025.

[01:30:14]So whether it is an adjusting event or non-adjusting event or what should we do?

[01:30:20]>> So if uh if you will replay the recording again >> sure >> at least 15 times I mentioned whether the conditions were existing or conditions were not existing. So in this case it is very very clear that conditions were existing before 31st March >> and it was an error and it certainly will go into the adjusting events. So if the management is not agreeing to that then please as auditors uh please look at uh you know uh ask for a u communication discuss it with the management and put a comment in your report.

[01:31:05]So next question is a listed company received information after the reporting period indicating that one of its major data had committed fraud before year and end before year end significantly affecting recoverability of receivables outstanding as at the reporting date. I think you have covered this.

[01:31:26]Yes, absolutely. This also covers see ultimately um um Paris the ultimate challenge comes when there is a gray area. I think both the cases we discussed there was no gray area. It was very very clear the conditions were existing before 31st March. Now the challenge comes when the management does not want uh this to be adjusted in the financial statements because they may feel that okay because my inventory value will go down my ratios will go down my uh profitability will get an impact or you the dattors will have an impact. So uh I may land into a situation that once I do these adjustments my loan convenience will get breached my ratios will go out. And then you will come back and say that okay now your loan uh convenence breach has happened now why are you showing it as a long-term liability you show it as a current liability and that that will have a further impact and then because of that there will be impact on the going concern because now they are recalling their loans and probably your company will not survive. So management may like to have that bias uh you know that uh this particular situation needs to be avoided. If if uh adjustment can not be done, we will make a disclosure.

[01:32:47]Management will say we do not have any objection. You give you a EOM paragraph uh emphasis or matter paragraph. But in our opinion, this is not an adjusting event. That's where the disputes or the debate between the auditors and management happens. And please remember that you have a very uh very lovely regulator standing right in front of you uh which is called Nafra. So this will uh uh you know they will not uh be lenient on the auditors if they are uh not taking action according to what is required by the standards on auditing.

[01:33:25]Correct sir.

[01:33:27]Okay. Next question is a subsidiary was sold after the reporting period pursuant to the discussions that commenced only after year end. However, management had internally identified the subsidiary as noncore and had initiated restructuring evaluations before the reporting date.

[01:33:47]>> Now this is something which is very interesting. Correct.

[01:33:49]>> You have to really go into detailing uh whether this is uh of course this is a subsequent event. I am understanding that it happens between the balance sheet date and the uh approval of the financial statements. So whether the conditions were existing or they were not existing as it appears from the question that those conditions were in the making. They are not they were not existing. So uh probably you will need to dwell more into this and if you find that the you know the discussions were going on uh within the board uh uh boardroom and the discussions were going on and restructuring was discussed but actual uh you know plan got finalized only after the u you know reporting period. So then probably you may treat it as a non-adjusting.

[01:34:48]Okay.

[01:34:48]>> But of course disclosure is required to be made.

[01:34:51]>> Right.

[01:34:53]Next quer is after the reporting period a parent entity decided to provide financial support to a financially distressed subsidiary that was already facing solvency concerns at year end.

[01:35:08]>> Yeah. Again a little bit of uh you know challenge in front of the management as well as the auditor. But I think the way uh it is appearing um before you actually decide it is a non-adjusting events you need to dwell deeper into the whole thing and you need to satisfy that condition that uh you know whether the precondition was there on reporting or not there. So if the management had already taken a decision and it was only about sending the money then probably you will put it into uh you know adjusting event otherwise it will go in the non-adjusting right.

[01:35:50]Next question is an entity finalized its financial statements but before issuance discovered a major error discovered a major error in assumptions used for impairment testing as at the reporting date.

[01:36:08]>> So as you know as the standard in AS 10 and also AS4 they say that in case there are errors they will be treated as a adjusting event. So there is no doubt that >> next question is an entity declared a material dividend after the reporting period but before the approval of the financial statements. Certain stakeholders argued that the dividend represented an obligation arising from the year and profits.

[01:36:39]Oh, >> so that is the main difference between the accounting standard 4 and 10 and even IAS10 which is IFRS. So basically the argument which uh IFRS and ASP IASP had taken at that point of time is that even though uh they relate to that period but we will treat it as a liability only when it is approved by the shareholders when it actually will become the liability. So that's uh that's the major difference between the two standards. So you need to keep that in mind. If you are making your financial as per the accounting standard framework then it will be certainly treated as a liability because that AS4 provides for that. But if you are making if you are using a framework of NDS then probably you will need to uh wait till the time the uh actually dividend is declared approved and declared. Yeah.

[01:37:34]>> Right.

[01:37:36]Next query. A cyber attack occurred after year and exposed weakness in the IT in the entity's IT system that were present before the reporting date.

[01:37:47]Subsequent investigation revealed potential compromise of financial records existing as at year end.

[01:37:56]Yeah, this uh this situation is real practical situation where you will need to delve deep into the whole thing and you will need to see whether uh how much is the depth and this probably might require you to go and take an external consultancy also because this is a very very serious matter and how much material is the impact the financial impact and uh whether this will uh if this is a banking and finance uh BFSI related industry then you have to go into all sorts of directions because there are regulatory requirements also and also the cert in uh latest um uh you know requirement is that all the regulated entities need to get uh their cyber security audit done.

[01:38:46]So when uh you are in that kind of situation you need to be careful and you need to as auditors you need to be very very um particular about documenting whatever action you are taking whatever inquiries you are doing whatever procedures you are carrying out.

[01:39:04]Right there. Next question is a company which is following India's has taken a building on lease as on 1st of April 2025 for 5 years in respect of which lease liability and RO assets have already been created by the company as per NS 1116 after 31st March 2026 that is after 1 year and after the reporting period but before the approval of the financials by board the company has entered a contract with the same landlord to purchase is the same building which has already been taken on lease by the company. So whether this should be treated as an adjusting event or non-adjusting event.

[01:39:45]So the golden rule is to see whether the conditions were existing at the time of financial statement preparation at the time of reporting period. So you need to see whether those conditions whether the buying the purchasing agreement was you know what is the situation. So probably you will need to collect more evidence in terms of email, in terms of communication, in terms of board minutes. That's why you know we had those uh uh checklist given for the management as well as for the auditors what is required to be done. Once you have gone through all those the minutes the uh opinions and all those then you can decide whether it was the conditions were pre-existing or not.

[01:40:28]So if mails were exchanged between auditor and the management then we can say it is >> how much how much commitment was given whether those mails were already approved by the board whether it was in the negotiation stage whether it was at the stage where only a discussion was happening uh can go in both the directions.

[01:40:48]>> Understood.

[01:40:50]Last query is if there is a going concern issue which arises after the reporting date but before the approval of approval of the financial statements by board. So how it should be treated in the financial statements under both frameworks that is NDS and as assuming the entity does not have mitigation plan. So entity is anyhow going to shut down its business.

[01:41:16]So that will have a significant impact because if you're signing off uh the balance you know the audit report and financial statements on a particular date and on that date when you are making a report you are aware that this company is going to go uh out of the business probably you will need to dwell deeper whether the condition of uh you know this were existing on 31st March or not. So that you have to be very very carefully uh not only look at it but also document uh so whether you're treating it as an adjusting event and you are looking at going concern issue and you are making financial statement as on the non-going concern basis also if the management has taken a call that okay we are assuming that this is a going concern then you need to challenge those that okay these conditions have happened when we have not even signed the balance sheet how have you taken going to uh call that this these financial statements are made on the basic conditions of going concern. So these are something which you need to go deep into it and it it cannot be vanilla answer that this is adjusting or nonadjusting. You have to look into the circumstances. You'll have to look into detail and then only you need to uh decide and there may be a significant um uh discussion with the management and probably you will need to go and take consultancy also um you know that how this matter needs to be uh dealt with.

[01:42:49]>> Correct. So this is it sir.

[01:42:53]>> So thank you very >> thank you so much you answered all the queries.

[01:42:58]Yeah.

[01:43:00]>> Uh Rahul, can we conclude this session?

[01:43:07]>> Yes sir.

[01:43:11]>> So thank you so much everyone for taking the time and thank you so much Pravin sir for delivering such an insightful session.

[01:43:20]Thank you so much.

[01:43:23]>> All right. Thank you.

[01:43:24]>> Thanks. Bye.

[01:43:26]>> Thank you so much.