Events After the Reporting Period Explained: When a Customer Collapse in January Changes Your December Accounts

Imagine your year end is 31 December. You close the books, the trial balance looks healthy, and your biggest customer owes you £85,000 on an invoice that is sitting comfortably in your debtor ledger as fully collectable. Then, on 20 January, that customer calls in the administrators. Suddenly the £85,000 you were treating as good money looks a lot shakier — but your accounts for the year to 31 December have not even been signed off yet. Do you change them? Do you ignore it because it happened in the new year? This is one of the most common and most misunderstood questions SME owners and finance managers face, and getting it wrong can mean signing off accounts that misstate your true financial position.

What are events after the reporting period?

An event after the reporting period is any event, favourable or unfavourable, that occurs between your year end date and the date your accounts are authorised for issue (which for UK companies is when they are approved by the board of directors). For many small and medium sized businesses, that gap can be anywhere from two to six months. A lot can happen to a business in that time — and accounting standards recognise this by splitting these events into two distinct categories, because they are treated completely differently in your accounts.

The first category is called adjusting events. These are events that provide more evidence about conditions that already existed at the year end. The customer was already struggling in December, you just did not have firm confirmation of it until January. Because the underlying problem existed at the balance sheet date, you adjust your figures to reflect it.

The second category is non-adjusting events. These are things that only came into existence after the year end — a brand new problem, not evidence of an old one. If a fire destroyed your warehouse on 15 January, that is a new event. It tells you nothing about your financial position on 31 December, so you do not change the numbers. Instead, you disclose it in a note so that anyone reading the accounts understands what has happened since.

This distinction sits at the heart of both UK GAAP (specifically FRS 102 Section 32) and IFRS (IAS 10). The wording differs slightly between the two frameworks but the underlying logic is identical, which is good news if you are ever comparing a UK GAAP set of accounts with an IFRS one.

Why the customer collapse example is an adjusting event

Going back to our £85,000 customer: the key question is not when they formally collapsed, but what their financial condition was at 31 December. If the business was already in financial difficulty before the year end — perhaps it had missed payments, was on a payment plan, or you had heard rumours of cash flow problems — then the January administration is simply confirmation of something that was already true. That makes it an adjusting event, and you must write down the receivable in your December accounts, even though the formal collapse happened in the new financial year.

Contrast this with a scenario where the customer was in perfectly good health in December, paid on time, and then lost a major contract of their own in mid-January that tipped them into administration overnight. In that case, the cause of their failure arose after your year end. You would not adjust the December numbers for the bad debt itself, but you would still disclose the event in the notes, because a reader of your accounts would reasonably want to know that a major customer has since failed, even if it does not change the historical figures.

In practice, most customer insolvencies are adjusting events. Businesses rarely collapse overnight with zero warning signs. Late payments, requests for extended credit terms, bounced cheques, or a visibly deteriorating balance sheet in their own filed accounts are all signs that existed before your year end, even if the formal insolvency notice arrived afterwards. This is why, when a major customer fails shortly after your year end, your auditor or accountant will almost always ask you questions about the state of that relationship in the months leading up to 31 December.

Worked example: adjusting the accounts

Let us put real numbers on this. Smithfield Components Ltd has a 31 December year end. At that date, trade receivables include £85,000 owed by Harlow Fabrications Ltd, a customer that has been a reliable payer for three years. In the autumn, Harlow started slipping — a payment that should have arrived in October was 45 days late, and the finance director mentioned in a phone call that they were waiting on a big customer payment of their own. No formal action was taken, and the £85,000 was left as fully recoverable at year end.

On 22 January, before the accounts for the year to 31 December are approved by the board, Harlow Fabrications enters administration. The administrators estimate that unsecured creditors, which includes Smithfield, will recover approximately 10 pence in the pound.

Because Harlow was already showing signs of financial distress before 31 December, this is treated as an adjusting event. Smithfield needs to write the receivable down to its estimated recoverable amount of £8,500 and recognise a bad debt expense of £76,500 in the accounts for the year just ended — not in the following year when the cash is actually lost.

Note that this journal is dated as at 31 December, not as at the date of the administration. The accounting treatment follows the underlying condition of the customer, not the date of the formal legal event. This is often the part that surprises business owners — the loss hits the accounts for the year that has already finished, which can mean a profitable-looking year suddenly takes a significant hit once the full picture is known.

What this means for management reporting too

This is not just a statutory accounts issue. If you produce monthly management accounts for your board or lenders, the same logic should feed into your bad debt provisioning policy throughout the year, not just at year end. A customer that is 60 days overdue in November is a warning sign worth flagging in your December management pack, well before any formal insolvency process begins. Building a simple ageing-based provisioning policy — for example, providing 25 percent against debts over 60 days and 75 percent against debts over 90 days — gives you an early warning system and means year end adjustments like the Harlow example above become smaller and less surprising, because you have already been providing against the risk gradually.

It is also worth remembering that going concern and events after the reporting period are closely linked. If a customer collapse after the year end is significant enough relative to your overall business — say it represents 30 percent of your annual revenue — it may not just be a bad debt adjustment but a trigger for a wider review of whether your own business remains a going concern. This is a conversation worth having with your accountant rather than something to assess alone, particularly if a single customer failure could threaten your cash position over the following twelve months.

1. Ask the right question first: did the problem exist at the year end, or did it only arise afterwards? This single test decides whether you adjust the figures or simply disclose them in a note.
2. Review your debtor ledger carefully between your year end and the date you sign off your accounts, specifically looking for customer failures, late payments, or distress signals that were present before the balance sheet date.
3. Build an ageing-based bad debt provisioning policy into your monthly management reporting so that large year end surprises become smaller and more predictable over time.
4. If a post year end customer failure is large relative to your turnover or cash reserves, raise it with your accountant immediately, as it may affect going concern disclosures as well as the bad debt itself.