Events after the balance sheet date can change the numbers in financial statements, require disclosure, or sometimes change the basis on which the accounts are prepared. Under AS 4, Contingencies and Events Occurring After the Balance Sheet Date, the key test is whether the later event gives additional evidence about a condition that already existed at the balance sheet date, or instead reflects a new condition arising afterwards.
For entities applying the Accounting Standards framework, the current ICAI text of AS 4 (revised 2016) is the primary reference. ICAI also provides a dedicated AS 4 publication page. First confirm that the entity follows the AS framework rather than Ind AS, because Ind AS entities use a different standard.
What period does AS 4 cover?
AS 4 defines events occurring after the balance sheet date as significant favourable or unfavourable events occurring between the balance sheet date and the date on which the financial statements are approved by the Board of Directors for a company, or by the corresponding approving authority for another entity.
This means the review window does not stop on 31 March simply because the accounting year has ended. Finance teams and auditors should continue monitoring relevant events until the accounts are approved.
The core test: existing condition or new condition?
A useful decision rule is:
- Existing condition at the balance sheet date: if the later event provides additional evidence about a condition that already existed, the year-end amounts may need adjustment.
- New condition arising after the balance sheet date: if the event relates to circumstances that arose only after year-end, the year-end amounts are generally not adjusted, although material disclosure may still be needed.
AS 4 expressly says assets and liabilities should be adjusted for subsequent events that provide additional evidence for estimating amounts relating to conditions existing at the balance sheet date. It also says adjustment is not appropriate where the later event does not relate to a condition existing at that date.
Example 1: customer insolvency after year-end
Assume a company has a material trade receivable outstanding on 31 March. In April, before the financial statements are approved, the customer becomes insolvent. The insolvency investigation shows that the customer had severe financial difficulty before 31 March and was already unable to meet obligations at year-end.
This later insolvency can confirm that impairment of the receivable existed at the balance sheet date. AS 4 itself uses customer insolvency after the balance sheet date as an example of information that may require an adjustment to the trade receivable. The closing receivable and related loss estimate should be reassessed using the evidence available before approval.
Example 2: investment value falls because of a new event
Assume an investment has a carrying amount supported by conditions existing on 31 March. In April, a completely new event causes the market price to fall sharply. AS 4 explains that ordinary declines in market value after the balance sheet date do not normally relate to the condition of the investment at year-end and therefore do not justify adjusting the year-end carrying amount merely because the price later fell.
The distinction is important: no adjustment does not automatically mean no disclosure.
Example 3: major fire and going concern
Suppose a major production plant is destroyed by fire after the balance sheet date but before approval of the financial statements. The fire itself may be a new post-year-end event. However, AS 4 specifically warns that events after the balance sheet date can indicate that the enterprise is no longer a going concern. A severe deterioration in operating results, financial position, or the destruction of a major production facility may therefore require management to reconsider whether the going-concern assumption remains appropriate.
This is more fundamental than deciding whether one asset balance should be adjusted. Where the subsequent event undermines the entity's ability to continue, the basis of preparation itself may need reconsideration.
What about dividends declared after year-end?
AS 4 states that dividends declared after the balance sheet date should not be recognised as a liability at the balance sheet date because no obligation exists at that time, unless a statute requires otherwise. Such dividends are disclosed in the notes.
When is disclosure required for a non-adjusting event?
Some post-year-end events do not change the figures in the financial statements but are still important enough that users need to know about them. AS 4 requires disclosure in the report of the approving authority for material changes and commitments affecting the financial position. The information should describe the nature of the event and give an estimate of its financial effect, or state that such an estimate cannot be made.
A practical year-end review checklist
- Define the review window: identify the balance sheet date and the date on which the financial statements will be approved.
- Collect subsequent-event information: review major customer defaults, litigation developments, financing events, asset damage, regulatory actions, major transactions and other significant developments.
- Ask when the underlying condition arose: distinguish evidence about a year-end condition from a genuinely new event after year-end.
- Adjust where AS 4 requires: revise assets, liabilities and related estimates when the event provides additional evidence about conditions existing at the balance sheet date.
- Assess disclosure separately: a non-adjusting event may still require disclosure if it is material to users' evaluation and decisions.
- Reassess going concern: do not stop at individual balances when the event threatens the entity's ability to continue operations.
- Document the conclusion: retain the event chronology, evidence considered, accounting analysis, materiality assessment and approval-date cut-off.
Common mistakes to avoid
- Adjusting every event that happens before the accounts are approved, regardless of whether the underlying condition existed at year-end.
- Ignoring an event because it occurred after year-end even though it confirms impairment or a liability already existing at the balance sheet date.
- Assuming that a non-adjusting event never needs disclosure.
- Failing to reassess going concern when a severe event occurs after the balance sheet date.
- Using the approval date inconsistently across finance, audit and Board documentation.
- Applying AS 4 mechanically without first confirming whether the entity actually follows AS or Ind AS.
Practical takeaway
The safest way to analyse an event after the balance sheet date is to focus on the condition, not the calendar. Ask whether the later event provides evidence about something that already existed at year-end. If yes, the year-end numbers may need adjustment. If the condition arose only afterwards, adjustment is generally inappropriate, but material disclosure may still be necessary. Finally, always test whether the event changes the going-concern conclusion, because that can affect the basis of preparation rather than only one line item.
