Event occurred after YE but prior to auditor’s report

Question 1

Disclosure in notes to F/S

Answer 1

(1) Sale of bond or stock issue
(2) Purchase of a business
(3) Litigation settlement, but only when the litigation is based on a post-balance-sheet event
(a) Because of the time involved with litigation, this would presumably be rare
(4) Fire or flood loss
(5) Receivable loss, but only when the loss occurred due to a post-balance-sheet event such as a customer’s major casualty arising after the balance sheet date

Question 2

Make an adjusting entry to adjust the F/S

Answer 2

(1) Settlement of litigation for an amount different from the liability recorded in the accounts, assuming the event causing the litigation occurred before year-end
(2) Loss on an uncollectible account receivable as a result of a customer’s deteriorating financial condition that led to bankruptcy subsequent to the balance sheet date
* Although the customer filed for bankruptcy after year-end, an adjustment is appropriate because filing for bankruptcy was simply the conclusion of the condition—deteriorating financial position—which began prior to year-end.