Subsequent Events

Note: Information contained in this article is not and should not be taken as professional accounting advice. Please consult a chartered professional accountant for the most up to date accounting practices.

What is a subsequent event

A subsequent event is an event that occurs after the cut-off date for a company’s year end and before the issuance of the financial statements. Depending on the nature of the event, a company may need to disclose the subsequent event and its impact on their financial statements.

Subsequent Events

Both the IFRS and GAAP have similar rules on how to handle subsequent events. For IFRS, subsequent event is covered under IAS10. For US GAAP, it is covered under ASC855.

Financial statements and subsequent events

The purpose of financial statements is to demonstrate the financial position of a company as of a specific date for a specific time period. Financial statements communicate important information about the business so that leadership and investors can make decisions. These financial statements include the balance sheet, income statement, and cash flow statement, and may be prepared monthly, quarterly, and annually. Public companies are required to file their financial statements quarterly and annually so that investors can access the information.

Financial statements take time to prepare. As a result, there is a gap between when the cut-off of the fiscal year is and when financial statements are released. Businesses still operate during this time and with that transactions may still take place. This gap in time creates an opportunity for subsequent events to occur.

Generally Accepted Account Principles (GAAP) requires the disclosure of all subsequent events that have a material impact on the company’s financial position. This ensures that investors are made aware of any financial events or transactions that have an impact on the business and provides an honest financial picture of the business.

The 2 types of subsequent events

While all subsequent events should be reported, not all of them are formally recognized and baked into the financial statements. The two types of subsequent events are:

  1. Adjusting (recognized) event – events that provide additional information about an existing condition on the balance sheet. Due to the relationship that additional information has with existing items on the financial statements, an adjusting event will require postings to the financial statements to reflect the subsequent event.
  2. Non-adjusting (non-recognized) events – events that provide new information about a condition that does not currently exist on the balance sheet. Because this is new information, there is no place on the financial statements that would need to be adjusted. Instead a disclosure within the financial statements is used to communicate the event to investors.

Example of Adjusting Event

An example of a subsequent event that is an adjusting event is the settlement of a lawsuit that happened before the balance sheet date. The company would have assessed an amount for contingent losses pending the lawsuit. Once the lawsuit settles, they would adjust the contingent amount to match the actual losses.

Other examples of adjusting events include client going bankrupt, triggering the need to write off bad debt, and or even detection of fraudulent or erroneous accounting statements.

Example of Non-Adjusting Event

A subsequent event that is a non-adjusting event would be if the company acquires another business. There would be no conditions on the existing financial statements to indicates that a purchase was looming in the future, and thus no adjustment to the financial statements is necessary. Instead, a disclosure of the subsequent event as a footnote in their financial statements is used. This ensures that such events with material impact on the financial position of the company are disclosed to investors.

Other examples of non-adjusting events include losses suffered from a natural disaster or a new lawsuit.

Key takeaways

  • Subsequent events occur after the cut-off date and before the authorization and issuance of financial statements
  • Disclosing subsequent events on financial statements is important in providing investors with an accurate picture of the company’s financial position
  • There are two types of subsequent events
    1. Adjusting events: provides additional information about an existing condition on the financial statements
    2. Non-adjusting events: provides new information that is not linked to any condition on the financial statements
Recommended Resources:
 

Uncover your strengths and weaknesses with our complimentary assessment. Boost your effectiveness at work and with your team.

Free Resource Library: Access our extensive collection of valuable resources for instant support in your personal and professional growth.

Explore Our Course Library:

Enhance your leadership skills with our diverse selection of courses. Take your abilities to the next level and become a more effective leader and team player.

Testimonials

Our Clients Love the Professional Leadership Institute

Your team will, too! Check out some reviews from our students.
The PLI program was invaluable to our network.
The range of topics delivered, the open dialogue, experience, and examples that PLI brought to each session were outstanding and provided a path for our Franchisees and Managers to look at leadership, coaching, and connecting with their teams in a new light. Many have implemented these strategies in their bakeries and have seen immediate results.
Michelle C.
COBS Bread
Highly recommend to help your team move forward
We have locations around BC and Alberta, so getting people on the same page can be very difficult... Until now. Our entire management team and location managers take the same great courses and then meet monthly online with our coach to apply it to our situation. People are engaged, the courses are excellent, we love our coach, and we are all learning together!
Jason Fawcett
President, Kelson Group
The result has been a transformation of our culture. 
We decided to implement PLI's strategies across the country in over 150 locations and over 3500 employees.  The result has been a transformation of our culture.  People's lives have been positively impacted - professionally and personally.  Morale is high and sales and profits are up as a result.
Daryl Verbeek
Daryl Verbeek
We’ve learned how to fix ongoing personnel issues once and for all
The roadmap laid out set our business up to quintuple in sales.  We've learned how to fix ongoing personnel issues once and for all, attract top talent, and spend our time focused on results, not internal staffing problems.  I highly recommend PLI to you - it's worked for us!
John DeJong
Satisfied Client
I had no idea that running a business could be this fun!
In less than 18 months of working with Trevor, he has transformed my business from being average to exceptional, where mediocrity is not acceptable, where being great is standard.  Working with PLI has allowed me to realize my dream of not simply owning a job, but owning a business.
Justin Bontkes
Principal, Caliber Projects
Our culture has taken major steps forward this year
Our culture has taken major steps forward this year with Trevor’s help.  He is funny, relatable, and his tools are very very practical and have helped us focus and upgrade our teams throughout our retail network. Trevor recently spoke to an employee group, and one person remarked, “I could listen to Trevor all day.”   We would highly recommend Trevor.
Stan Pridham
Founder, KMS Tools
The results have been remarkable
At first, we resisted, “This just won’t work with a law firm.” But we persisted and the results have been remarkable: our client base and profits have steadily improved, and staff engagement and morale is the healthiest its ever been.
Doug Lester
Partner, RDM Lawyers
Helped our fast-growing business become what it is today
I've experienced PLI's approach first hand and it's been crucial to sustaining our growth.  I can't imagine a business that wouldn't benefit greatly from his help.
Brian Antenbring
Founder, TEEMA
Provided practical ways to make positive changes
Trevor was incredibly well-received by the entire organization. He was able to articulate people issues that many of our franchisees were experiencing and provided them with practical ways to make positive changes. We have implemented the Star Chart tool across the organization and see it as vital to building happy, effective teams.
Aaron Gillespie
President, COBS Bread
Scroll to Top

Start Learning Today

For Individuals

Unlock your potential and accelerate your career with sought-after management and leadership skills.

 

Transform Your Organization

For Teams

Book a consultation to discuss your challenges and discover how we can help you build a winning team.

 

Sign Up For Weekly Tips!

Get Weekly Coaching Tips Straight To Your Inbox Every Monday.