Subsequent Events Flashcards
What is a subsequent event?
an event or transaction that occurs after the balance sheet date but before the financial statements are issued or available to be issued. Subsequent events can be divided into two categories: recognized and unrecognized
What are recognized subsequent events?
they provide additional information about conditions that existed at the balance sheet date; entities must recognize the effects of all recognized subsequent events in the financial statements. Some examples include the settlement of litigation and the loss on an uncollectible receivable
What are nonrecognized subsequent events?
they provide information about conditions that did not exist at the balance sheet date. Some examples include sale of bond or capital stock, loss of plant or inventory due to fire/natural disaster, and settlement of litigation that arose after the balance sheet date
it should be disclosed if disclosure is necessary to keep the financial statements from being misleading; disclosure should include the nature of the subsequent event and an estimate of the financial effect of the event or a statement that no estimate can be made; proforma financial statements showing the effect of the subsequent event if it had occurred on the balance sheet date may also be presented
Facts on subsequent event evaluation period
an entity that files financial statements with the SEC must evaluate subsequent events through the date that the financial statements are issued; financial statements are considered to be issued when they have been widely distributed to financial statement users in a form and format that complies with GAAP (there is no requirement for any shareholders to have acknowledged receipt of the financial statements)
all other entities must evaluate subsequent events through the date that the financial statements are available to be issued; financial statements are available to be issued when they are in a form and format that complies with GAAP and all approvals for issuance have been obtained
if an entity is not an SEC filer, then the entity must disclose the date through which subsequent events have been evaluated, including whether that date is the date the financial statements were issued or the date that the financial statements were available to be issued; this disclosure is not required for SEC filers to avoid potential conflicts with current SEC guidance
T/F: revised financial statements are considered reissued financial statements
True; they are financial statements that have been revised to correct an error or to reflect the retrospective application of U.S. GAAP
if an entity is not an SEC filer, the entity should disclose in its revised financial statements the date through which subsequent events have been evaluated in both its issued/available-to-be-issued financial statements and its revised financial statements; this disclosure is not required for SEC filers
