FAR2 M3 - Subsequent Events Flashcards
Subsequent Events
Subsequent Event
an event/transaction that occurs after the BS date, but before the FS are issued or are available to be issued.
Two types of subsequent events
- Recognized - existed as of the BS date. Record and disclose (if misleading, if not disclosed).
- Unrecognized - did not exist as of BS date. Disclose only. Should disclose the event and estimate the effect (if misleading, if not disclosed).
Recognized Subsequent Event Examples
a. Settlement of Litigation (ligation arising before BS date and settled after the BS date, but before FS issue date).
b. Loss on an un-collectible receivable - effects of customer’s bankruptcy filing after the BS date, but before FS issue date.
Nonrecognized Subsequent Event Examples
- Sale of bond/capital stock
- Business combo
- Settlement of litigation, if the claim arose after BS date
- Loss of plant/inventory due to fire or natural disaster
- Changes in FV of assets, liabilities, or foreign exchange rates
- Entering into significant commitments or contingent liabilities
- Loss on receivables resulting from conditions occurring after the BS date
Subsequent Event Evaluation Period
Public Companies - evaluate subsequent events through the date FS are issued. FS are considered issue when they have been widely distributed to users in the form and format that compiles with GAAP.
Private Companies - evaluate subsequent events through date available to be issued. Must disclose the date through which subsequent event was evaluated. FS are considered available to be issued when the are in the form and format that complies with GAAP and all approvals for issuance has been obtained
Reissuance of FS
When an entity reissues its FS, the entity should NOT recognize the events that occurred between the date the original FS were issued and the date that the FS was reissued.
Revised FS
Financial statements that have been revised to correct an error or to reflect a retrospective application of GAAP. Are considered reissued statements. If an entity is not an SEC filer, they need to disclose in its revised FS the dates through which subsequent events have been evaluated in both the original issued and reissued FS.
