Subsequent events

Area 3: Select Transactions (25-35%)

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Topics

Identifying and classifying subsequent events
Adjustments and disclosures for subsequent events

Lessons

Subsequent EventsFree

Study Frameworks

Subsequent Events (ASC 855)

Subsequent Events

Type I — Recognized (Adjusting)

Conditions existed at the balance sheet date

Adjust the financial statements

Examples: settlement of litigation filed before year-end, customer bankruptcy confirming year-end AR impairment

Type II — Nonrecognized (Disclosing)

Conditions arose after the balance sheet date

Disclose only — do not adjust the statements

Examples: fire destroying a plant after year-end, business combination after year-end

Evaluation Window

SEC filer: evaluate through date FS are issued

Non-SEC: evaluate through date FS are available to be issued

Do not recognize events after the evaluation date

Subsequent Event Classification (ASC 855)

Did the event occur between the balance sheet date and the date the financial statements were issued (or available to be issued)?

Yes

Did the condition that caused the event exist at the balance sheet date?

Yes

Type I (Recognized) — adjust the financial statements to reflect the event

Type II (Nonrecognized) — disclose the nature and estimated financial effect in the notes; do not adjust the statements

Not a subsequent event — outside the evaluation window. No recognition or disclosure required

Subsequent Events — Type I vs. Type II

Feature	Type I (Recognized)	Type II (Nonrecognized)
Condition timing	Existed at balance sheet date	Arose after balance sheet date
Financial statement treatment	Adjust the statements	Disclose in notes only
Rationale	Statements should reflect conditions that existed	New conditions should not alter the historical snapshot
Example — litigation	Settlement of lawsuit filed before year-end confirms a loss	New lawsuit filed after year-end
Example — asset value	Customer bankruptcy confirming year-end AR impairment	Fire destroys warehouse after year-end
Example — business	Resolution of tax dispute pending at year-end	Business combination completed after year-end

RACEDRecognized events = conditions Already existed at balance sheet Date

For subsequent events under ASC 855, Type I (recognized/adjusting) events are those where the underlying condition already existed at the balance sheet date — the post-year-end event merely provides evidence. If the condition arose after the date, it is Type II (disclose only).

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