FAR 2 Module 5

Question 1

what is a subsequent event and what are the two categories of subsequent events?

Answer 1

An event or transaction that occurs after the B/S date but before the F/S are issued or are available to be issued

1) Recognized subsequent events - provide additional info about conditions that existed at B/S date
2) Nonrecognized subsequent events - provide information about conditions that occurred after the B/S date and did not exist on the B/S date

Question 2

subsequent evaluation period

Answer 2

-entity who files to SEC must evaluate subsequent events through date that financial statements are issued
-all other entities must evaluate subsequent events through the date that the F/S are available to be issued
-SEC filing F/S considered issued when F/S have been distributed to users in format compliant with GAAP and all approvals of issuance obtained

Question 3

reissuance of financial statements

Answer 3

-when reissue F/S, entity should not recognize events that occurred between the date the original F/S were issued or available to be issued and date the F/S were reissued UNLESS an adjustment is required by GAAP or other regulatory requirements

Question 4

revised financial statements

Answer 4

-F/S that have been revised to correct an error or to reflect retrospective application of U.S. GAAP
-considered reissued F/S
-if not SEC filer, disclose in revised F/S dates subsequent events evaluated in issued, available to be issued and revised F/S
-disclosure not required for SEC filer

Question 5

two types of recognized subsequent events

Answer 5

1) settlement of litigation: settlement amt determined as a liability and reported on B/S date (meets subsequent definition)
2) loss on uncollectible AR: impact of customer’s bankruptcy considered when determining amt of uncollectible AR and recognized on F/S on B/S date

Question 6

nonrecognized subsequent events

Answer 6

-subsequent is not recognized if it did not exist at balance sheet date
-should be disclosed if it keeps F/S from being misleading
-should include nature of subsequent event and estimate of impact of event OR stmt that estimate cannot be made
-pro forma financial statements showing effect of subsequent event if it occurred on B/S may also be presented

Question 7

examples of nonrecognized subsequent events

Answer 7

1) sale of bond of capital stock
2) business combination
3) settlement of litigation, if occurred after B/S date
4) loss of plant or inventory due to fire/natural disaster
5) changes in fair value of assets, liabilities, or foreign exchange rates
6) entering into significant commitments or contingent liabilities
7) loss on receivables resulting from conditions occurring after B/S date