One factor among many that boards will need to consider when preparing their financial statements in the wake of the COVID-19 pandemic will be how they handle events after the reporting date.

Sure enough, IAS 10 makes a distinction between events occurring after the balance sheet date that provide further information about the conditions that prevailed on the balance sheet date – these being known as “adjusting events” – and events that are indicative of conditions that came to pass after the balance sheet date. The latter are referred to as “non-adjusting events”.

While adjusting events necessitate the adjustment of the amounts in the financial statements, in the case of material non-adjusting events, only disclosures are needed.

Is the pandemic an adjusting or non-adjusting event?

The general consensus is that for most UK companies preparing financial statements for periods ended 31^st December 2019, the COVID-19 outbreak in 2020 can be considered to have been a non-adjusting event.

However, judgement will be required from companies as to how much of COVID-19’s impact should be regarded as arising from non-adjusting events for subsequent reporting dates. This will be largely dictated by such factors as the reporting date, the specific circumstances of the business’s operations, and the particular events under consideration.

Companies seeking to reach this judgement will need to look at the importance of the conditions at the balance sheet date. Does the event in question shed greater light on those conditions, or was it only after the reporting date that conditions changed?

If the judgement significantly impacted on the amounts in the financial statements, then the company is expected to disclose and explain that judgement.

The appropriate reporting of non-adjusting events

In the event that a particular event is considered to be non-adjusting, then the nature of the event ought to be disclosed. Where it is possible to estimate the financial effect on the company, then this should be disclosed. If, however, the financial effect cannot be estimated, the fact that it cannot be estimated should be disclosed.

There is no need for an exact estimate – it is better to provide a range of estimated effects than no quantitative information at all. If no quantitative estimate is provided, boards are urged to give a qualitative description instead.

How can London Registrars continue to assist you during this time?

The COVID-19 pandemic is still bringing wide-ranging and frequently unpredictable impacts for organisations across the sectors – but one thing that your company can still be sure of is the highly professional and responsive corporate governance service of London Registrars.

For a suitably detailed discussion about the many ways in which we can serve your firm through this uncertain and challenging period – encompassing every key aspect of company secretarial practice for PLCs, among other types of company – please do not hesitate to enquire to us via phone, fax or email.

May 2020