IAS 10 deals with the accounting treatment of events occurring after the reporting date.
(a) In assessing the results of a company for the current year, explain why events occurring after the reporting date may be of importance; and describe the circumstances where the financial statements should and should not be adjusted.
(b) During a review of Penchant's draft financial statements (for the year ended 30 September 2003) in October 2003, the following matters came to light:
-The company's internal auditors discovered a fraud on one of the company's contracts. A senior employee had accepted an inducement of $200 000 for awarding the construction of roadways on one of the company's contracts to a particular subcontractor. Investigations showed that the price of the subcontracting was $1 million higher than another comparable tender offer. At 30 September 2003 the contract was approximately 50% complete.
- An earthquake occurred on 10 October 2003. It caused damage to an in progress contract that it is estimated will cost $500 000 to rectify.
- At 30 September 2003 the company's head office premises were included in the draft financial statements at a value of $12 million. A building surveyor's report showed that they had fallen in value by $2 million. This was due partly to the discovery of ground subsidence and partly to a general fall of 10% in property prices caused by a sharp unexpected rise in interest rates announced in October 2003.
- In October 2003 there was a sharp fall in the value of a foreign currency. Penchant was owed a substantial amount for the final installment of a completed contract whose price was fixed in that currency. The estimated loss due to the fall in the exchange rate has been translated at $250 000.
Required:
For each of the items above, explain how Penchant should treat them under International Financial Reporting Standards.