Kanak Traders Ltd. closes its accounts on 31 March. In May, before the financial statements are approved, a major customer is declared insolvent; its financial position had been deteriorating for months before the year-end. Under SA 560 this is:

Correct answer: C) An event providing evidence of conditions that existed at the year-end, requiring adjustment of the financial statements

Explanation

SA 560 distinguishes events that provide evidence of conditions existing at the period end (adjusting) from those indicative of conditions arising after it (non-adjusting). The customer's insolvency confirms that the receivable was impaired at the year-end, so the allowance for credit losses should be adjusted.