Subsequent Events
Subsequent events are events occurring after the balance sheet date but before financial statements are issued (or available to be issued), classified as recognized (Type I) or nonrecognized (Type II).
Explanation
Recognized subsequent events (Type I) provide additional evidence about conditions that existed at the balance sheet date and require adjustment to the financial statements. Examples include settlement of litigation that was accrued, or realization of a receivable that was estimated.
Nonrecognized subsequent events (Type II) provide evidence about conditions that arose after the balance sheet date and require disclosure only, not adjustment. Examples include a fire destroying a major facility, or a business combination completed after year-end. The evaluation period extends through the date the financial statements are issued (for SEC filers) or available to be issued (for non-SEC filers).
Key Points
- •Type I (recognized): conditions existed at balance sheet date — adjust financial statements
- •Type II (nonrecognized): conditions arose after balance sheet date — disclose only
- •Evaluate through date statements are issued or available to be issued
- •SEC filers evaluate through issuance date; non-SEC through available-to-be-issued date
Exam Tip
Focus on distinguishing Type I from Type II events. The key question: did the condition exist at the balance sheet date? If yes, adjust. If no, disclose.
Frequently Asked Questions
Related Topics
Contingencies and Commitments
A contingency is an existing condition involving uncertainty about possible gain or loss that will be resolved when future events occur, accounted for under ASC 450.
Audit Evidence
Audit evidence is all information used by the auditor to arrive at the conclusions on which the audit opinion is based, evaluated for sufficiency (quantity) and appropriateness (quality).
Balance Sheet (Statement of Financial Position)
The balance sheet reports an entity's assets, liabilities, and equity at a specific point in time, following the fundamental accounting equation: Assets = Liabilities + Equity.
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