Why AS 4 Is Important
Financial statements are prepared after the balance sheet date, not on the same day.
During this gap, certain events may occur that can significantly affect the financial position of a business.
AS 4 tells us:
- Which events should change the figures in accounts
- Which events should only be disclosed
- And which events can be ignored
In short:
AS 4 answers the question — “What to do if something important happens after year-end?”
Objective of AS 4
To prescribe the treatment of significant events that occur between:
- The Balance Sheet Date, and
- The date on which financial statements are approved
What Is the Balance Sheet Date?
It is the last day of the accounting period.
Example:
For accounts prepared for the year ending 31 March 2025,
Balance Sheet Date = 31 March 2025
Meaning of Events After the Balance Sheet Date
These are events (favourable or unfavourable) that occur:
- After the balance sheet date
- But before approval of financial statements
Classification of Events under AS 4
AS 4 classifies events into two categories:
Adjusting Events
Events that provide additional evidence of conditions that existed on the balance sheet date.
These events:
- Require adjustment in the financial statements
Examples of Adjusting Events:
- Bad debts confirmed after balance sheet date
- Settlement of a court case confirming an existing liability
- Fall in inventory value due to conditions existing at year-end
- Discovery of errors or frauds relating to the period
Example:
A debtor of ₹2,00,000 becomes insolvent in April.
If insolvency relates to poor financial condition existing on 31 March →
Provision for bad debts must be made.
Non-Adjusting Events
Events that indicate conditions that arose after the balance sheet date.
These events:
- Do not require adjustment
- But material events must be disclosed
Examples of Non-Adjusting Events:
- Fire destroying factory after balance sheet date
- Issue of shares or debentures after year-end
- Major acquisition or merger after balance sheet date
- Natural calamity (earthquake, flood, etc.)
Example:
A fire breaks out on 10 April destroying inventory.
- No adjustment in accounts
- Disclosure required if material
Key Difference: Adjusting vs Non-Adjusting Events
| Basis | Adjusting Events | Non-Adjusting Events |
| Condition relates to | Existing at BS date | Arises after BS date |
| Adjustment in accounts | Yes | No |
| Disclosure required | Optional | Mandatory if material |
| Impact | Changes figures | Only explanatory note |
Disclosure Requirements under AS 4
For material non-adjusting events, disclose:
- Nature of the event
- Estimated financial effect (if possible)
If estimation is not possible, state so clearly.
Events Not Covered by AS 4
AS 4 does not apply to:
- Proposed dividends (covered by AS 4 earlier, now treated separately)
- Going concern assumption (handled under AS 1)
Common Exam Mistakes
- Adjusting figures for non-adjusting events
- Forgetting disclosure for material non-adjusting events
- Confusing AS 4 with AS 5
- Writing examples without linking them to balance sheet conditions
Exam Tip
If the question asks:
“State how the event should be treated as per AS 4”
Always answer in 3 steps:
- Identify whether adjusting or non-adjusting
- State accounting treatment
- Mention disclosure (if required)
“Good accounting is not about hindsight — it’s about recognizing what truly belonged to the past.” – CA Rohit Sethi
