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