Subsequent Event
IntermediateA subsequent event is a significant event that occurs after the end of a reporting period but before the financial statements are issued, which may need to be reflected in, or disclosed alongside, those statements.
Financial statements describe the position at a specific date, but they are usually published weeks or months later. Events in between can provide important information.
Accounting standards divide subsequent events into two types. Adjusting events provide further evidence about conditions that already existed at the reporting date, so the figures are updated. For example, if a major customer goes bankrupt shortly after year-end, it suggests the amount it owed was already unlikely to be collected, so the company adjusts its allowance for bad debts.
Non-adjusting events reflect conditions that arose after the reporting date, so the figures are not changed, but significant ones are disclosed in the notes. Examples include a large acquisition, a fire that destroys a factory, a major share issue or a significant fall in the value of investments after year-end.
For example, a company with a 31 December year-end that agrees to buy a competitor for 50 million on 15 February, before publishing its accounts in March, would disclose the acquisition as a non-adjusting subsequent event.
Subsequent events help readers understand developments that could affect the company's future.
For worked examples and full lessons, visit notesbysara.org.