Accounting Online Program Certification Practice Test

What does an adjusting event affect in financial reporting according to IAS 10?

1. Future events

2. Conditions at end of reporting periods

3. Events after the reporting date

4. General financial health of the entity

The correct answer is: Conditions at end of reporting periods

An adjusting event, as defined by IAS 10, directly influences the conditions that exist at the end of the reporting period. When an event or transaction occurs after the reporting period but before the financial statements are approved for publication, it provides additional evidence about conditions that were in existence at the end of the reporting period. This means that the event informs the understanding of the financial position or performance of the entity as of the reporting date and may require adjustments to the financial statements to ensure they reflect the reality of those conditions. For instance, if a significant asset is discovered to be impaired after the reporting date but relates to conditions that existed before that date, the financial statements must be adjusted to reflect this impairment. This reflects the principle that the financial statements are meant to provide a true and fair view of an entity's financial position, and recognizing adjusting events ensures that users of those statements receive the most accurate and relevant information. Other options do not accurately represent the definition or impact of adjusting events. Future events would not be considered adjusting since they pertain to prospective conditions, while events after the reporting date do not automatically equate to adjusting events unless they provide relevant evidence about conditions at the end of the reporting period. General financial health, while important, is a broader