FAR 3G subsequent events Flashcards
(9 cards)
What are subsequent events, and how is the evaluation period defined under U.S. GAAP?
📅 Subsequent events are events or transactions occurring after the balance sheet date but before financial statements are issued or available to be issued.
📘 SEC filers evaluate subsequent events through the date the financial statements are issued.
📎 All other entities evaluate subsequent events through the date the financial statements are available to be issued.
When are financial statements considered “available to be issued”?
✅ When they are complete and comply with GAAP.
🗂️ When all necessary approvals (e.g., from management or the board) have been obtained.
👥 This definition typically applies to non-SEC filers.
How is a gain contingency treated if the underlying event occurred before the balance sheet date, but no agreement is finalized before the financial statements are issued?
⚠️ It remains a gain contingency because the outcome is uncertain (e.g., settlement could be revoked, rejected, or appealed).
🚫 Recognition is not permitted in the financial statements due to the speculative nature of gains.
📝 If material, the situation should be disclosed in the notes
📘 This applies even if the underlying event occurred before the balance sheet date, as long as the gain is not realized or certain before issuance
How are gain contingencies and nonrecognized subsequent events disclosed under U.S. GAAP?
⚠️ Gain contingencies are not recognized in financial statements due to their uncertainty.
📝 If material, they should be disclosed in the notes to the financial statements
📘 Nonrecognized subsequent events (events about conditions arising after the balance sheet date) are also disclosed, not recorded
When should a loss from a customer’s bankruptcy be recognized as a subsequent event?
⚠️ If the customer’s financial issues existed before the balance sheet date, and bankruptcy occurs after that date but before issuance,
📉 The loss is recognized in the financial statements.
📅 This is because the event provides additional evidence about a condition that already existed.
✅ It affects the realization of receivables, which must be adjusted accordingly.
What type of subsequent events require recognition in the financial statements?
📘 Events that provide additional evidence about conditions that existed at the balance sheet date.
📉 This includes events like the settlement of litigation or customer bankruptcy affecting recorded amounts.
🧮 These events typically involve revising estimates or adjusting asset values based on new but confirming information.
🚫 Events that arise from new conditions after the balance sheet date are not recognized, only disclosed.
How are “probable” vs. “reasonably possible” loss contingencies treated when they arise from subsequent events?
✅ If the loss is probable and can be reasonably estimated, it must be accrued in the financial statements.
📝 If the loss is reasonably possible (but not probable), it is not accrued, but must be disclosed in the notes.
🚫 If the loss is remote, no accrual or disclosure is required.
📅 This applies when the event that caused the loss occurred before the balance sheet date, and new info confirms it before issuance.
How should nonrecognized subsequent events be disclosed when they involve significant post–balance sheet developments?
📅 If the event arises after the balance sheet date and does not relate to conditions that existed at year-end, it is not recognized in the financials.
📝 However, if the event is material and could influence users’ decisions, it must be disclosed in the notes.
🏢 Examples include a business combination, major casualty loss, or a significant change in fair value of assets like investments.
🔍 Disclosure should describe the nature of the event and provide an estimate of the financial effect, or state if such an estimate cannot be made.
What is the key difference between recognized and nonrecognized subsequent events in financial reporting?
✅ Recognized events provide additional evidence about conditions that existed at the balance sheet date and must be reflected in the financial statements.
📅 Examples: settlement of litigation related to pre-BS date events, customer bankruptcy tied to preexisting financial trouble.
🚫 Nonrecognized events are new conditions that arose after the balance sheet date and are not recorded, but may require disclosure if material.
📝 Examples: major business combinations, fire or flood loss, or decline in asset value due to new events.
