F2M5 Flashcards
Subsequent Events
Nonrecognized Subsequent events
Did not exist at balance sheet date, but: Should be disclosed in order to keep the FS from being misleading.
Disclosure includes: nature of event and estimate of the financial effect or stating no estimate can be made.
Pro forma (hypothetical) FS showing the effects of the event if had occurred before BS date may also be presented.
Recognized subsequent events
Settlement of litigation that was known before BS date
Customer goes bankrupt after BS date (impacts uncollectible receivable)
Entity that files with SEC: evaluates subsequent events through
the day FS are issued.
when are they considered issued FS
Issued when they have been widely distributed in a form and format that is GAAP compliant.
All other entities that dont file with the SEC: evaluate subsequent events through
the date that FS are available to be issued. Must disclose the date they evaluated the subsequent events through, while stating if that was issuance date or date available for issue.
When are FS considered available for issuance:
they are in form and format that is GAAP compliant and all approvals for issuance have been obtained.
when FS are reissued, what happens to the subsequent event evaluation period?
Nothing, they do not recognize events that happened after FS issuance/available for issuance date.
and Revised FS are considered reissued, if the entity is not an SEC filer, both dates regarding when they evaluated subsequent events (original issuance/available for issuance date and the revised FS date) should be disclosed.
If a customer that is typically a timely payer with multiple outstanding invoices, has a flood after the BS date and the customer then closes permanently and refuses to answers calls. how is this treated?
1: typically a timely payer so no reason to believe they werent going to pay
2: flood is unpredictable along with them closing permanently, so nonrecognized event.
However, if the outstanding invoices are considered material a disclosure may be required.
if a nonrecognized subsequent event occurs, but the company has an insurance policy with a deductible and it is reasonably possible the entity will have to pay. what amount is disclosed in the footnotes?
Only the deductible amount if the total liability amount is less than what the insurance policy covers.
For a recognized subsequent event regarding a lawsuit, does the lawsuit have to be filed by year end?
No, only the circumstances creating a lawsuit have to occur before the BS date. ex: someone getting injured in December, but no lawsuit filed until January still results in an accrual.
The estimated amount that is reasonably possible the entity will have to pay is accrued to the financials.
Extra expenses that may be incurred before litigation is settled is not accrued.
Do SEC filers have to disclose the last date that subsequent events were evaluated?
No they do not.
