F2 - M3 - Subsequent Events Flashcards
What is a subsequent event?
An event/transaction that occurs after year end (balance sheet date) but before the financial statements are issued.
What are the two types of subsequent events?
Recognized and Non-recognized
What are recognized subsequent events?
Conditions that existed at the balance sheet date and have had additional effects prior to issuing financial statements.
Treatment of recognized subsequent events
Record a journal entry and disclose in the footnotes
Examples of recognized subsequent events
- Settlement of litigation
- Loss on an uncollectible receivable (i.e., customer bankruptcy filing)
What are non-recognized subsequent events?
Conditions that did NOT exist at the balance sheet but occurred prior to issuance of the financial statements
Treatment of non-recognized subsequent events
Disclose only
Examples of non-recognized subs
- Sale of bond or capital stock
- Business combination
- Settlement of litigation, if litigation arose after balance sheet date
- Loss of plant or inventory due to fire or natural disaster
- Change in fair value of assets, liabilities, or fx
- Entering into significant commitments or contingent liabilities
- Loss on receivables resulting from conditions occurring after balance sheet date
What information should be included in the disclosure of a subsequent event?
- Nature of the subsequent event
- Estimate of the financial effect; OR
- Statement that no estimate can be made
When should a public company evaluate subsequent events?
Through the date that the financial statements are issued
i.e., when they have been widely distributed to financial statement users in a form and format that is GAAP compliant
When should a private company evaluate subsequent events?
Through the date that the financial statements are available to be issued. Entity must disclose the date through which subsequent events have been evaluated.
i.e., when they are in a form and format that is GAAP compliant and all approvals for issuance have been obtained
What is the effect of subsequent event recognition on reissued financial statements?
Entity should not recognize events that occurred between the date the financials were originally issued or available to be issued and the date that the financial statements were reissued
Exception: If an adjustment is required by GAAP
Subsequent Events under IFRS
Events after the reporting period through the date the financial statements are authorized for issuance
Recognized = “Adjusting events after the reporting period”
Non-Recognized = “Non-adjusting events after the reporting period”
What is the purpose of revised financial statements?
(Also known as reissued financial statements)
Financial statements that have been revised to correct an error or to reflect the retrospective application of GAAP.
Private companies should disclose the date through which subsequent events have been evaluated both in its issued/available to be issued financial statements and its revised financial statements.
