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What is a Subsequent Event?A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements. The two types of subsequent events are noted below. Additional InformationAn event provides additional information about conditions in existence as of the balance sheet date, including estimates used to prepare the financial statements for that period. New EventsAn event provides new information about conditions that did not exist as of the balance sheet date. Subsequent Event ReportingGenerally accepted accounting principles state that the financial statements should include the effects of all subsequent events that provide additional information about conditions in existence as of the balance sheet date. This rule requires that all entities evaluate subsequent events through the date when financial statements are available to be issued, while a public company should continue to do so through the date when the financial statements are actually filed with the Securities and Exchange Commission. Examples of situations calling for the adjustment of financial statements are:
If there are subsequent events that provide new information about conditions that did not exist as of the balance sheet date, and for which the information arose before the financial statements were available to be issued or were issued, these events should not be recognized in the financial statements. Examples of situations that do not trigger an adjustment to the financial statements if they occur after the balance sheet date but before financial statements are issued or are available to be issued are:
A company should disclose the date through which there has been an evaluation of subsequent events, as well as either the date when the financial statements were issued or when they were available to be issued. There may be situations where the non-reporting of a subsequent event would result in misleading financial statements. If so, disclose the nature of the event and an estimate of its financial effect. If a business reissues its financial statements, disclose the dates through which it has evaluated subsequent events, both for the previously issued and revised financial statements. Consistency in Disclosing Subsequent EventsThe recognition of subsequent events in financial statements can be quite subjective in many instances. Given the amount of time required to revise financial statements at the last minute, it is worthwhile to strongly consider whether the circumstances of a subsequent event can be construed as not requiring the revision of financial statements. There is a danger in inconsistently applying the subsequent event rules, so that similar events do not always result in the same treatment of the financial statements. Consequently, it is best to adopt internal rules regarding which events will always lead to the revision of financial statements; these rules will likely require continual updating, as the business encounters new subsequent events that had not previously been incorporated into its rules. Example of a Subsequent Events DisclosureThe following is an example of a typical disclosure of a subsequent event: The following events and transactions occurred subsequent to December 31, 20XX:
What are events that occurred after the date on the balance sheet but before the financial statements have been issued called?A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements.
What is the auditor's responsibility on the events after the date of the report?The auditor does not have any responsibility to perform procedures or make any inquiry regarding the financial statements after the date of the auditor's report.
Which of the following events occurring after the issuance of an auditor's report?Which of the following events occurring after the issuance of the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements? New information regarding significant unrecorded transactions from the year under audit is discovered.
What report is filed when there is a significant business event that occurs between financial statement dates?-The 8-K reports significant business events that occur between financial statement dates, such as the acquisition of another company, a change in its year end, or a change in auditor.
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