Question

The Australian Securities and Investments Commission (ASIC) alleged that Portmanteau Bank breached responsible lending laws in July 2019. ASIC commenced civil penalty proceedings in the federal court against Portmanteau Bank. As a result, the bank was facing an estimated fine of $30 million. The Chief Executive Officer (CEO) of the bank was advised by the legal team that the bank’ lending standards are sound, and there’s 60% of the chance that they would win the legal battle brought by ASIC. The accounting department therefore recognised a $12 million in both ASIC Fines Expense and Provision of Fines Payable accounts. However, due to new evidence exposed during the investigation by ASIC in August, the legal team has advised the CEO that the bank is highly likely to be found guilty. The newly estimated legal liability could be $28 million. The company released its annual report for the year ended 30 June 2019 on 30 September 2019.  

Required:Analyse the above event and classify the event as either an adjusting or a non-adjusting event. (1 mark)

Apply relevant accounting standards to justify your classification.

Answer 1

Given that ASIC has alleged Portmanteau Bank for breaching responsible lending laws and commenced civil penalty proceedings in July 2019. The said event has occured after the reporting period (i.e., 30th June,2019) in the month of july,2019. Therefore, the event is classified as Non-Adjusting event.

As per IAS 10, Non-adjusting events are indicative of a condition that arose after the end of the reporting period and do not result in adjustment to the financial statements. In given case, the event has occurred after the reporting date in the month of July,2019 that do NOT provide evidence of conditions that existed at the end of the reporting period.