Subsequent Events
Significant events occurring after the balance sheet date but before financial statements are issued.
What is Subsequent Events?
Subsequent events are transactions or conditions that occur after the reporting period end date but before the financial statements are issued. Under ASC 855, there are two types: recognized subsequent events provide additional evidence about conditions that existed at the balance sheet date and require adjustment to the statements; non-recognized subsequent events relate to new conditions arising after the balance sheet date and require only footnote disclosure. Examples include material acquisitions, natural disasters, debt default, significant litigation outcomes, and major restructuring decisions. Auditors scrutinize subsequent events during fieldwork to ensure complete and accurate financial reporting.
Example
A company's fiscal year ends December 31. On January 15 — before the financial statements are issued — a major customer files for bankruptcy. Because the customer's financial distress existed at December 31, this is a recognized subsequent event. The company must adjust its allowance for doubtful accounts to reflect the higher expected credit loss, reducing both receivables and net income for the year ended December 31.
Source: FASB Accounting Standards Codification — ASC 855 Subsequent Events