Accounting Standard 4: All paragraphs of AS 4 (Revised) that deal with contingencies are applicable only to the extent not covered by other Accounting Standards prescribed by the Central Government. For example, the impairment of financial assets such as impairment of receivables (commonly known as provision for bad and doubtful debts) is governed by this Standard. Thus, the present standard (AS 4 (Revised)) deals with the treatment and disclosure requirements in the financial statements of events occurring after the balance sheet.
Contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known or determined only on the occurrence, or non-occurrence, of one or more uncertain future events.
Ind AS 10, Events after the Reporting Period
The objective of Ind AS 10 is to prescribe:
- (a) when an entity should adjust its financial statements for events after the reporting period; and
- (b) the disclosures that an entity should give about the date when the financial statements were approved for issue and about events after the reporting period.
The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.
As per IFRS: Rectification of any breach after the end of the reporting period is a non - adjusting event.
Carve Out: As a consequence to carve-out (resulted in carve out) stated in Ind AS 1 above, Ind AS 10 provides, in the definition of Events after the reporting period‘ that in case of breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, if the lender, before the approval of the financial statements for issue, agrees to waive the breach, it shall be considered as an adjusting event.
Difference Between AS 4 and Ind AS 10
|AS 4||Ind AS 10|
|AS 4 requires the disclosure of the same in the report of approving authority.||Ind AS 10 requires the disclosure of material non-adjusting events in the financial statements.|
|AS 4 does not contain any such appendix.||Ind AS 10 includes an appendix titled “Distribution of Non-Cash Assets to Owners”, which is an integral part of Ind AS 10. Along with this, it also deals with when to recognize dividends payable to owners.|
|AS 4 only requires adjustment to assets and liabilities. It does not require a fundamental change in basis of accounting. Further, it also does not require any such disclosure, as is required by Ind AS 1.||
If after the reporting date, it is determined that the going concern assumption is no longer appropriate, Ind AS 10 requires a fundamental change in the basis of accounting.
In this regards, Ind AS 10 refers to Ind AS 1, which requires an entity to make following disclosures:
|AS 4 is silent on this aspect. However, Guidance Note on Schedule III, issued by ICAI states that considering that the practical implications of the breach are negligible in the Indian scenario, the entity should continue to classify the loan as “Non Current” as on the Balance Sheet date, provided that the loan is not actually demanded by the bank at any time prior to the date on which the financial statements are approved.||
The definition of “Events after reporting period” in Ind AS 10 contains a proviso, which specifies that:
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