Subsequent Events

ASPE: 3820

Subsequent Events

ASPE: 3820

Definition
  • A subsequent event is an event that occurs between the balance sheet date and the date the financial statements are completed
  • In general, there are two types of subsequent events:
    1. those that provide further evidence of conditions that existed at the financial statement date; and
    2. those that are indicative of conditions that arose subsequent to the financial statement date
Accounting Treatment
When can financial statements be adjusted?

Financial statements are adjusted when subsequent events provide additional evidence relating to conditions that existed at the date of the financial statements

Examples of adjusting events:
  • lawsuits settled after the year-end that confirms that the company had an obligation at the end of the reporting period
  • information after year-end indicating impairment of assets at the end of the reporting period
    • the bankruptcy of a customer (indicates A/R was impaired)
    • sale of inventory after reporting period may give evidence of net realizable value (and possible inventory impairment)
  • more information RE the cost or the proceeds of a disposition
  • fraud or errors that misstate the financial statements
When can financial statements not be adjusted?
  • Financial statements are not adjusted for subsequent events that do not relate to conditions that existed at the date of the financial statements
    • Disclose these events if they:
      • cause significant changes to assets or liabilities in the subsequent period; or
      • will, or may, have a significant effect on the future operations of the enterprise
    • at a minimum you should disclose:
      • a description of the nature of the event; and
      • an estimate of the financial effect, when practicable, or a statement that such an estimate cannot be made

Examples of non-adjusting events:

  • an event such as a fire or flood that results in a loss;
  • a decline in the market value of investments;
  • purchase of a business;
  • commencement of litigation when the cause of action arose subsequent to the date of the financial statements;
  • changes in foreign currency exchange rates; and
  • the issue of capital stock or long-term debt.
Comparison to IFRS

Under IFRS, the subsequent event period is between the reporting date and when the F/S are authorized for issue (the subsequent event period under IFRS could be later than ASPE)

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