Subsequent Events
Subsequent events are a quick 1-2 MCQ topic, but candidates throw away easy points by confusing the two types. Type 1 (recognized): the condition already existed at the balance sheet date, so you adjust the statements. Type 2 (non-recognized): a new event happened after year-end, so you disclose only. The classic AICPA trap: a lawsuit settled after year-end for a loss that was already probable at year-end is Type 1 - adjust, don't just disclose. A hurricane that wipes out inventory after year-end is Type 2 - new event, disclose only. The one question that sorts everything: 'Did the condition exist at year-end?'
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What AICPA wants you to know
- 1Define the subsequent event evaluation period
- 2Distinguish Type 1 (recognized) from Type 2 (non-recognized) subsequent events
- 3Apply the correct accounting treatment to each type
- 4Identify the required disclosure for subsequent events, including the evaluation date
- 5Recognize the difference between SEC registrants and non-public entities for issuance dates