57 ASC 855 SUBSEQUENT EVENTS
PERSPECTIVE AND ISSUES
Subtopic
ASC 855, Subsequent Events, consists of one Subtopic:
- ASC 855-10, Overall, which provides guidance for events or transactions occurring after the balance sheet date.
Scope and Scope Exceptions
ASC 855 applies to all entities and all transactions except for those covered in other Codification Topics.
Overview
ASC 855 describes the circumstances under which an entity should recognize events or transactions in its financial statements that occur subsequent to the balance sheet date, but before the financial statements are available to be issued. This can have a potentially significant impact on loss contingencies.
DEFINITIONS OF TERMS
Financial Statements Are Available to Be Issued. Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.
Financial Statements Are Issued. Financial statements are considered issued when they are widely distributed to shareholders and other financial statement users for general use and reliance in a form and format that complies with GAAP. (U.S. Securities and Exchange Commission [SEC] registrants also are required to consider the guidance in paragraph 855-10-S99-2)
Revised Financial Statements. Financial statements revised only for either of the following conditions:
- Correction of an error
- Retrospective application of U.S. GAAP.
Securities and Exchange Commission (SEC) Filer. An entity that is required to file or furnish its financial statements with either of the following:
- The Securities and Exchange Commission (SEC)
- With respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section.
Financial statements for other entities that are not otherwise SEC filers whose financial statements are included in a submission by another SEC filer are not included within this definition.
Subsequent Events. Events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. There are two types of subsequent events:
- The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events).
- The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (that is, nonrecognized subsequent events).
CONCEPTS, RULES, AND EXAMPLES
Types of Subsequent Events
The statement of financial position is dated as of the last day of the fiscal period, but a period of time usually elapses before the financial statements are issued. During this period, significant events or transactions may have occurred that materially affect the company's financial position. These events and transactions are called subsequent events. The omission of disclosure of significant events occurring between the date of the statement of financial position and issuance date of the financial statements could mislead the reader who is otherwise unaware of those events.
SEC filers and conduit bond obligors for conduit debt securities traded in a public market is required to evaluate subsequent events through the date the financial statements are issued. All other entities must evaluate subsequent events through the date the financial statements are available to be issued. (ASC 855-10-25-1A)
There are two types of subsequent events, which relate to when the event or transaction occurred and determine the accounting treatment:
- Existing conditions. Additional evidence may arise about a condition that existed as of the balance sheet date. If so, recognize these changes within the financial statements.
- Subsequent events. Evidence may arise about conditions that did not exist as of the balance sheet date, but which occurred later. Do not recognize these changes within the financial statements.
The following table presents a variety of sample situations occurring after the balance sheet date but before the financial statements are available to be issued, and that apply to these two types of subsequent events:
| Event | Accounting Treatment |
| Litigation is settled for an amount different from the recorded liability | (1) |
| Loss on a customer receivable caused by customer bankruptcy | (1) |
| Loss of assets due to a natural disaster | (2) |
| Loss on receivables from conditions arising after the balance sheet date | (2) |
| Changes in the fair value of assets or liabilities | (2) |
| Issuing significant guarantees | (2) |
- (1) Recognize within the financial statements if they are not yet available to be issued.
- (2) Do not recognize until the next reporting period.
An entity should disclose the date through which it has evaluated subsequent events, and whether that date is the date when the financial statements were issued or available to be issued. For revised financial statements, disclose both the dates through which subsequent events have been evaluated through the issued or available-to-be-issued financial statements, and for the revised financial statements.
If a nonrecognized event is so significant that the financial statements would be misleading without disclosure of it, note the nature of the event and an estimate of its financial effect, or a statement that the entity cannot create such an estimate.
- A loss on an uncollectible trade account receivable that results from a customer's deteriorating financial condition, which led to bankruptcy subsequent to the date of the statement of financial position, would be indicative of conditions existing at the date of the statement of financial position, thereby calling for adjustment of the financial statements before their issuance. On the other hand, a loss on an uncollectible trade account receivable resulting from a customer's major casualty, such as a fire or flood subsequent to the date of the statement of financial position, would not be indicative of conditions existing at the date of the statement of financial position, and the adjustment of the financial statements would not be appropriate. However, if the amount is material, disclosure would be required.
- A settlement of a lawsuit would require adjustment of the financial statements if the event that gave rise to the claim occurred prior to the date of the statement of financial position. However, only disclosure is required if the event that gave rise to the claim occurred after the date of the statement of financial position, and then only if the amount involved were expected to be material.
- The second type of events (those not existing at the date of the statement of financial position) that require disclosure but not adjustment include the following:
- Sale of a bond or capital stock issue
- Purchase of a business
- Loss of plant or inventories as a result of fire or flood
- Gains or losses on certain marketable securities