Module 5: Subsequent Events

Question 1

Subsequent events can be divided in two categories

Answer 1

Type 1: Recognized Subsequent Events: Refers to the information being disclose is for something that is already in the financial statements and we just received new information about it
Type 2: Non Recognized Subsequent events: We don’t recognize because this do not provide information that existed as of balance sheet dates.
*No adjustment is needed in the financial statements
*We only disclose if it is material or it will cause the statements to be misleading otherwise

Question 2

A Subsequent event:

Answer 2

Occurs after the balance sheet date but before the statements are either issued or available to be issued

Question 3

Nonrecognized events

Answer 3

-Sale of bond or capital stock
-Business combination
-Settlement of litigation arose after the balance sheet date
-Loss of plant or inventory due to fire or natural disaster
-Changes in the fair value of assets, liabilities, or foreign exchange rates
-Entering into significant commitments or contingent liabilities
-Loss on receivable resulting from conditions occurring after the balance sheet date

Question 4

Financial statements are available when:

Answer 4

Financial statements are prepared, finalized, and then made available to be issued.

Question 5

Financial statements are issued:

Answer 5

When they have been widely distributed to users.

Question 6

Subsequent event evaluation period: Public vs private

Answer 6

Public: must evaluate subsequent events through the date that the financial statements are issued. (NO NEED TO DISCLOSE)
Private: must evaluate subsequent events through the date that the financial statements are available to be issued. (MOST DISCLOSE THE PERIOD)

Question 7

How should a company report a material event (like a fire) that occurs after the balance sheet date but before the financial statements are issued?

Answer 7

Disclose the nature of the event and the estimated financial impact in the notes, but do not recognize (record) it in the financial statements for the prior period.

Question 8

How should a loss from a fire that occurred after the balance sheet date but before financial statements are issued be treated in the financial statements?

Answer 8

It should be disclosed in the notes but not recognized in the financial statements because it is a nonrecognized subsequent event.

Question 9

financial statements are considered to be “available to be issued” when:

Answer 9

I. The financial statements are in a form and format that comply with GAAP.

II. All approvals necessary for the issuance of the financial statements have been received.

Question 10

financial statements are considered to be “issued” when:

Answer 10

I. The financial statements are in a form and format that comply with GAAP.
III. The financial statements have been widely distributed to financial statement users.