20 May Week 2 Topic 1 Review
According to the AICPA SAS N.1 section 560, a subsequent event is an event that occurs before the financial statements, but after a reporting period. The two types are:
- Additional information: Events that affect the estimates created by managements from all information received in the issuance of the financial statements.
- New events: An event that allows for new information about certain conditions that did not exist as of balance sheet date.
Some examples of subsequent events include adjusting entries for particular events; for example, let’s say an invoice was created before the balance sheet date and the customer goes bankrupt, or perhaps a lawsuit was triggered before the balance sheet date. In the case of these events, consider adjusting those accounts to the correct balance (contingent loss and allowance for doubtful accounts).
Some subsequent events are disclosed in the financial statements to keep them from being misleading to the public. A typical disclosure looks like this:
- The jury found the company non liable in the lawsuit against Mr. Mathew.
- The company’s customer Connor, declared bankruptcy on Jan. 18, 2018. The company increased allowance for bad debt account by $50,000 as a result.
Reference
AU Section 560 Subsequent Events. (1972, November). Retrieved February, 2018, from https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00560.pdf
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