What is a Post Balance Sheet Event?

You may or may not have heard of a post balance sheet event before but in the world of finance and bookkeeping, it is a fairly common occurrence.

To understand what a post balance sheet event is, you first need to understand what a balance sheet is. A balance sheet is a financial statement that provides a snapshot of a company’s financial condition at a specific point in time. It records all of the ingoing’s and outgoings of a business to give an accurate financial analysis and help ensure that the correct amounts of tax are paid by a business each year.

A post balance sheet event, also known as a subsequent event, refers to an event or transaction that occurs after the balance sheet date but before the financial statements are finalised and approved for issue. These events can provide additional information about conditions that existed at the end of the reporting period (balance sheet date) or those that arose subsequent to it.

Essentially it’s a financial event that will effect a business for their tax returns and financial reporting, but missed the deadline to be added to the balance sheet. This can be for a number of reasons as we discuss below.

How Does a Post Balance Sheet Event Work?

Post balance sheet events are typically divided into two categories:

Adjusting Events: These events provide additional evidence about conditions that existed at the balance sheet date. For instance, if a lawsuit was filed against the company before the balance sheet date, but the outcome was decided after the balance sheet date, it would be an adjusting event. In such cases, the financial statements must be adjusted to reflect the new information.

Non-Adjusting Events: These events pertain to conditions that did not exist at the balance sheet date but arose subsequent to it. For example, if a natural disaster damaged company property after the balance sheet date, this would be a non-adjusting event. Such events aren’t reflected in the financial statements; however, if the event is significant, it should be disclosed in the notes accompanying the financial statements to keep the users informed about the event and its potential financial impact.

Why are Post Balance Sheet Events Important?

Accuracy of Financial Statements: These events can have a significant impact on the company’s financial statements. Adjusting events can alter the figures in the statements, while non-adjusting events, although not affecting the figures, require disclosure to provide a complete picture of the company’s financial health.

Investor Insights: Post balance sheet events can give investors and other stakeholders significant insights into events that may affect the company’s future financial position.

Regulatory Compliance: Accounting standards such as International Accounting Standard (IAS) 10, ‘Events after the Reporting Period’, provide specific guidance on how to account for and disclose such events, making their understanding essential for regulatory compliance.

In conclusion, understanding what a post balance sheet event is and how it works is crucial to ensure the accuracy of financial statements and compliance with accounting standards. It also provides valuable insights into the company’s financial position post the reporting period, aiding stakeholders in making informed decisions. Remember, a clear understanding of these financial nuances is what enables a company to navigate the business landscape successfully.

For more information and assistance with your bookkeeping needs, get in touch with CPL Accounts.