Question

Zero Corp. suffered a loss having a material effect on its financial statements as a result of a customer’s bankruptcy that rendered a trade receivable uncollectible. This bankruptcy occurred suddenly because of a natural disaster 10 days after Zero’s balance sheet date but 1 month before the issuance of the financial statements and the auditor’s report. Under these circumstances, theA.Financial Statement should be adjusted B.No action C.Events require footnote disclosure, but not adjustment to financial statements D.Auditor report should be modified for a lack of consistency

Answer 1

Answer:

C. Event require footnote disclosure, but not adjustment to financial statement

Explanation:

IAS 10 represents the accounting standard that govern the scenario under analysis - events after the reporting date.

Zero Corp suffered a loss having a material effect on their books, owning to customers bankruptcy. However, this bankruptcy erupted suddenly after the balance sheet date, but one month before the issuance of the financial statements and the auditor's report.

The scenario under consideration is a non adjusting event simply because it existed just after the balance sheet date. Going by IAS 10 stipulations, a non adjusting event only require a disclosed, especially seeing that the implications have s material effect on the going concern of the organization. Thus, the disclosure in this case, will ensure a description of:

1. The nature of the event

2. The effect on the financial statement.

The organization will do well to update its disclosure requirements, and ensure it take cognizance of any other conditions that existed after the balance sheet date, but before issuance.

Answer 2

Answer:

Events require footnote disclosure, but not adjustment to financial statements.

Explanation:

A balance sheet is the statement of the financial position of a business at a particular period in time. So in this scenario if the balance sheet has already been prepared and bankruptcy occurred suddenly because of a natural disaster 10 days after Zero’s balance sheet date but 1 month before the issuance of the financial statements and the auditor’s report.

This requires a disclosure of the event after the balance sheet date. The event is a subsequent occurence and as such does not affect the balance sheet report.

The exception is when a subsequent event provides additional evidence of financial position as at the balance sheet date.

This is not the case here so only disclosure will be made.