September 04, 2022 September 04, 2022/ Steven Bragg
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 Information
An 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 Events
An event provides new information about conditions that did not exist as of the balance sheet date.
Subsequent Event Reporting
Generally 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:
Lawsuit. If events take place before the balance sheet date that trigger a lawsuit, and lawsuit settlement is a subsequent event, consider adjusting the amount of any contingent loss already recognized to match the amount of the actual settlement.
Bad debt. If a company issues invoices to a customer before the balance sheet date, and the customer goes bankrupt as a subsequent event, consider adjusting the allowance for doubtful accounts to match the amount of receivables that will likely not be collected.
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 business combination
Changes in the value of assets due to changes in exchange rates
Destruction of company assets
Entering into a significant guarantee or commitment
Sale of equity
Settlement of a lawsuit where the events causing the lawsuit arose after the balance sheet date
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 Events
The 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 Disclosure
The following is an example of a typical disclosure of a subsequent event:
The following events and transactions occurred subsequent to December 31, 20XX:
The company concluded acquisition discussions with ABC Corporation, and paid $10,000,000 in cash to the shareholders of ABC on February 28, 20XX to acquire 100% of the outstanding shares of ABC.
A jury found that the company was not liable in a lawsuit brought by Smith.
The company's largest customer, Jones & Company, declared bankruptcy on February 10, 20XX. Given this new information, the company increased its reported allowance for doubtful accounts by $100,000, which is included in these financial statements.
September 04, 2022/ Steven Bragg/
IAS 10 Events After The Reporting Period contains requirements for when events after the end of the reporting period should be adjusted in the financial statements. Adjusting events are those providing evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are indicative of conditions arising after the reporting period (the latter being disclosed where material).
IAS 10 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.
| July 1977 | Exposure Draft E10 Contingencies and Events Occurring After the Balance Sheet Date |
| October 1978 | IAS 10 Contingencies and Events Occurring After the Balance Sheet Date effective 1 January 1980 |
| 1994 | IAS 10 (1978) was reformatted |
| August 1997 | Exposure Draft E59 Provisions, Contingent Liabilities and Contingent Assets |
| September 1998 | IAS 37 Provisions, Contingent Liabilities and Contingent Assets |
| 1 July 1999 | Effective date of IAS 37, which superseded those portions of IAS 10 (1978) dealing with contingencies |
| November 1998 | Exposure Draft E63 Events After the Balance Sheet Date |
| May 1999 | IAS 10 (1999) Events After the Balance Sheet Date superseded those portions of IAS 10 (1978) dealing with events after the balance sheet date |
| 1 January 2000 | Effective date of IAS 10 (1999) |
| 18 December 2003 | Revised version of IAS 10 issued by the IASB |
| 1 January 2005 | Effective date of IAS 10 (Revised 2003) |
| 6 September 2007 | Retitled Events after the Reporting Period as a consequential amendment resulting from revisions to IAS 1 |
Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue. [IAS 10.3]
Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]
Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period. [IAS 10.3]
- Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.8]
- Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting period. [IAS 10.10]
- If an entity declares dividends after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. That is a non-adjusting event. [IAS 10.12]
An entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so. [IAS 10.14]
Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made. [IAS 10.21]
A company should update disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that it receives after the reporting period about those conditions. [IAS 10.19]
Companies must disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact. [IAS 10.17]