AS 4 — Contingencies and Events After the Balance Sheet Date

AS 4 deals with the treatment in financial statements of events that occur after the balance sheet date but before the financial statements are approved. The balance sheet is drawn up as at a particular date, but the statements are not finalised until some weeks or months later, and things happen in that gap. AS 4 answers the question: which of those later events should change the figures in the financial statements, and which should merely be disclosed?

(Note: the "contingencies" portion of AS 4 has largely been superseded by AS 29, Provisions, Contingent Liabilities and Contingent Assets. AS 4 now primarily governs events after the balance sheet date, with the residual contingency content read together with AS 29.)

Objective and the core idea

The objective is to prescribe the accounting treatment and disclosure of events occurring after the balance sheet date. The central concept is the distinction between events that provide further evidence of conditions that *existed* at the balance sheet date, and events that reflect conditions that *arose after* the balance sheet date. The first kind should be reflected in the financial statements; the second kind should not change the figures but may need disclosure.

Events occurring after the balance sheet date

These are events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the approving authority (for a company, typically the Board of Directors). AS 4 divides them into two types based on whether they relate to conditions existing at the balance sheet date.

Adjusting events. These provide additional evidence of conditions that existed at the balance sheet date. Because the condition already existed at year-end, the financial statements should be *adjusted* to reflect the new evidence. A classic example is the insolvency of a customer occurring after year-end that confirms a debt outstanding at the balance sheet date was, in substance, already doubtful or bad — the receivable should be written down in the financial statements. Another is the determination after year-end of the amount of a liability that existed at the balance sheet date (for instance, settlement of a court case relating to a pre-year-end event). The principle is that the event simply gives better information about something that was already true at the reporting date, so the accounts should reflect it.

Non-adjusting events. These concern conditions that did not exist at the balance sheet date but arose afterwards. They do not lead to adjustment of the figures, because the condition was not present at year-end. However, if such an event is of such significance that non-disclosure would affect the ability of users to make proper evaluations and decisions, it should be disclosed in the financial statements — stating the nature of the event and an estimate of its financial effect (or a statement that such an estimate cannot be made). A typical example is a major fire or natural disaster destroying a significant asset after the balance sheet date, or a substantial decline in the value of investments after year-end due to conditions arising after that date. The figures are not changed, but users are told about the event.

Proposed dividends

AS 4 has a specific and frequently-examined position on proposed dividends. Dividends proposed or declared after the balance sheet date but before approval of the financial statements, in respect of the period covered by those statements, are addressed by AS 4. Following amendments aligning Indian practice, such proposed dividends are not recognised as a liability at the balance sheet date (because the obligation does not exist until the dividend is approved by shareholders); instead they are disclosed in the notes. This is an important change from older practice where proposed dividends were provided for. The dividend becomes a liability only when it is appropriately approved.

Going concern

AS 4 also requires that assets and liabilities should be adjusted for events occurring after the balance sheet date that indicate that the fundamental accounting assumption of going concern is no longer appropriate. If events after year-end show that the enterprise is not a going concern — for example, an intention or necessity to liquidate or curtail operations materially — this is treated as an adjusting matter affecting the basis of preparation, not merely a disclosure, because it goes to the very foundation on which the statements are drawn up.

Disclosure requirements

Where an adjusting event leads to adjustment, the financial statements simply reflect the adjusted figures. For significant non-adjusting events, the disclosure includes the nature of the event and an estimate of the financial effect (or a statement that such an estimate cannot be made). The standard's disclosures ensure that, even where the numbers are not changed, users are not left unaware of material post-year-end developments.

A full worked example

AS 4, like Ind AS 10, hinges on whether a post-balance-sheet event is adjusting or non-adjusting. A company with a 31 March year-end approves its accounts in June and encounters these events.

Event after 31 March	Type	Treatment
Court rules against the company in April on a year-end dispute	Adjusting	Adjust — recognise the liability
Major customer insolvent in May (debt outstanding at year-end)	Adjusting	Adjust — write down receivable
Fall in market value of investments after year-end	Non-adjusting	Disclose if material
Fire damaging assets in May	Non-adjusting	Disclose if material

The adjusting event, worked. If a court rules in April that the company owes ₹7,00,000 on a claim that existed at year-end, the ruling confirms the obligation existed at 31 March, so a provision is recognised in the year just ended.

Account	Debit (₹)	Credit (₹)
Legal expense (P&L, year just ended)	7,00,000
Provision for claim		7,00,000

The AS 4 logic mirrors Ind AS 10: adjust for events that confirm conditions existing at the balance-sheet date; merely disclose events that reflect new conditions arising afterwards. An important update: AS 4 was amended so that proposed dividends are no longer recognised as a liability at the balance-sheet date — they are disclosed and recognised when approved — bringing AS 4 into line with Ind AS 10.

How AS 4 compares with Ind AS 10

AS 4 corresponds to Ind AS 10, "Events after the Reporting Period," and the two share the same fundamental adjusting/non-adjusting distinction and the same treatment of proposed dividends (not recognised as a liability, only disclosed) and going concern. Ind AS 10 uses the terminology "events after the reporting period" and ties the cut-off to the date the financial statements are approved for issue. The contingencies content that historically sat in AS 4 is, under the Ind AS framework, dealt with comprehensively in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets — mirroring how AS 29 now carries that content on the AS side.

Common pitfalls

Frequent issues include treating an adjusting event as merely a disclosure (and so failing to correct the figures for evidence of conditions existing at year-end); conversely, adjusting the figures for a non-adjusting event that relates only to post-year-end conditions; continuing to provide for proposed dividends as a year-end liability rather than disclosing them; and overlooking post-year-end information that calls the going concern assumption into question.

Why this is cleaner on a unified system

Identifying events after the balance sheet date that affect the accounts depends on having complete, connected information about receivables, liabilities, and the business's position — which is far easier when everything sits in one system rather than being pieced together from separate tools during the close. A unified platform that holds the full financial picture in one place makes it more straightforward to spot, for example, that a post-year-end customer default relates to a balance already outstanding at the reporting date, and to make the adjustment cleanly.

This article is a detailed educational summary of AS 4 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of AS 4 (read together with AS 29) as issued by the ICAI before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.