post-balancesheetevents

post-balancesheetevents - NBS 3A2Y AUDIT AND ACCOUNTABILITY...

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NBS – 3A2Y AUDIT AND ACCOUNTABILITY CASE: 11 MASSIVE MOTORS LTD CONTENTS 1.0 – Introduction Page: 3
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2.0 – Post – Balance Sheet Events Page: 4 3.0 – Contingencies Page: 6 4.0 – Commitments Page: 8 1. 5.0 – Conclusion Page: 10 6.0 – Conclusion Page: 11 2
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1.0 - INTRODUCTION Massive Motors (MM) is part of the Massive Group plc and operates a chain of garages throughout the UK which sell petrol and offer services such as repairs. Its year end is 31 March. After the year ended we were provided with some further information which we have analysed and have offered some suggestions as to how the company should treat some of these matters. The company did some revaluation of Land and buildings, made some progress with a claim that Identical Copiers was issuing against the company, made a contract to purchase a site from Newtown Properties plc and issued a 12 month warranty for any second hand cars it sold during the year end 31 March 19X8. Following is a report on how we believe these matters should be treated in Massive Motors accounts. 3
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Post-balance sheet events are events that occur after the balance sheet date, also known as year-end, and before the financial statements are signed by the directors and auditors (Elliott and Elliott, 2006). Events arising after the balance sheet date need to be reflected in financial statements if they provide additional evidence of conditions that existed at the balance sheet date. There are two types of post-balance sheet events: Adjusting events which provide information on conditions that existed before the balance sheet date Non-adjusting events which provide information on conditions after the balance sheet date. a) Extract from 19X8 audit file – Land and buildings The valuation commissioned in June 19X8, after the year-end, provided new information about the conditions that existed after the year-end. According to the IAS 10 (Elliott and Elliott, 2006), this is a non-adjusting post-balance sheet event. The accounting treatment proposed by MM is to not incorporate the results in the 19X8 financial statements. However, according to IAS 10, the valuation results should be disclosed as notes if the non-adjusting event is material. The reason that MM proposed for non-disclosure being “notified after the year-end” was thus not appropriate. According to IAS 10 non-disclosure is only possible if doing so will not mislead the users. However, if there is material difference that would mislead the user, the item should be disclosed in notes. It is thence necessary to determine the materiality of the change in valuation results. 4
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This note was uploaded on 02/23/2012 for the course MGT 101 taught by Professor Staff during the Fall '10 term at Texas State.

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post-balancesheetevents - NBS 3A2Y AUDIT AND ACCOUNTABILITY...

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