Subsequent Events After the Balance Sheet Date
- Graziano Stefanelli
- Jul 23
- 2 min read
Subsequent events are material transactions or developments that occur after the reporting period but before the financial statements are authorized for issue. Evaluating and disclosing these events ensures that financial statements remain relevant and faithfully represent the entity’s financial position and performance as of the reporting date.
Types of Subsequent Events
Subsequent events fall into two categories:
Adjusting events: Provide additional evidence about conditions that existed at the balance sheet date and require adjustments to the financial statements.
Non-adjusting events: Relate to conditions that arose after the balance sheet date; do not result in adjustments, but may require disclosure if material.
Understanding the distinction is essential for accurate reporting and compliance with accounting standards.
Examples of Adjusting Events
Settlement of litigation where the event causing the litigation occurred before year-end
Bankruptcy of a customer with financial difficulties existing at the balance sheet date
Receipt of information confirming the impairment of an asset at year-end
Finalization of amounts related to a previously estimated liability
Adjusting events require retrospective adjustment of recognized amounts or the recognition of new liabilities or losses in the financial statements.
Examples of Non-Adjusting Events
Major business combinations or acquisitions after the reporting period
Destruction of assets due to fire or natural disaster occurring after year-end
Announcements of plans to discontinue operations after the reporting period
Issuance of debt or equity securities after the reporting period
Non-adjusting events are not reflected in the amounts recognized in the financial statements but must be disclosed if they are of such importance that non-disclosure would affect users’ economic decisions.
Period Covered for Subsequent Events Review
Management is responsible for identifying and evaluating all subsequent events that occur between the balance sheet date and the date the financial statements are authorized for issuance. This period may vary depending on the entity’s internal controls, audit timeline, and local regulatory requirements.
Recognition and Disclosure Requirements
Adjusting events: Adjust the financial statements to reflect new information about conditions existing at the reporting date.
Non-adjusting events: Disclose the nature of the event and an estimate of its financial effect, or state that such an estimate cannot be made.
Disclosure must clearly indicate the date through which subsequent events were evaluated.
Going Concern Considerations
Certain subsequent events may cast significant doubt on an entity’s ability to continue as a going concern. Such events may require extensive disclosure, changes to measurement bases, or restatement of the financial statements.
Audit and Internal Control Implications
Auditors must extend their procedures to consider subsequent events up to the audit report date. Management should maintain systems to identify, assess, and communicate subsequent events in a timely manner.
Relevant Accounting Standards
US GAAP: ASC 855—Subsequent Events
IFRS: IAS 10—Events after the Reporting Period
Both frameworks require a clear distinction between adjusting and non-adjusting events and mandate appropriate recognition and disclosure.
Summary Table: Subsequent Events
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