ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which of the following describes non-adjusting events?

1. Events impacting recognition of financial liabilities

2. Events confirming the accuracy of financial statements

3. Events occurring after the reporting period affecting financial status

4. Events related to dividend distributions

The correct answer is: Events occurring after the reporting period affecting financial status

Non-adjusting events refer to occurrences that take place after the reporting period but before the financial statements are issued, which require disclosure to provide users with insights into the current financial status of the entity. These events do not necessitate adjustments to the figures reported in the financial statements since they do not relate to conditions that existed at the reporting date. Choosing the option about events occurring after the reporting period affecting financial status captures this definition accurately. Such events might include significant sales or declines in the value of assets that could influence the users’ understanding of the financial health of the entity. The other options, while relevant in different contexts, do not define non-adjusting events appropriately. For instance, events that impact the recognition of financial liabilities or confirm the accuracy of financial statements relate either to adjustments or confirmations of prior circumstances, and they may require adjustments to reported amounts. Further, events related to dividend distributions may relate to prior earnings but do not inherently define the concept of non-adjusting events as they are typically planned distributions rather than indicators of post-reporting conditions. Hence, the correct choice accurately encapsulates the essence of non-adjusting events in financial reporting.