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Major events or transactions \u2014 such as a natural disaster, a cyberattack, a regulatory change or the loss of a large business contract \u2014 may happen after<\/em> the reporting period ends but before<\/em> financial statements are finalized. The decision of whether to report these so-called \u201csubsequent events\u201d is one of the gray areas in financial reporting. Here\u2019s some guidance from the AICPA to help you decide.<\/p>\n Recognition<\/strong><\/p>\n Financial statements reflect a company\u2019s financial position at a particular date and the operating results and cash flows for a period ended on that date. However, because it takes time to complete financial statements, there may be a gap between the financial statement date and the date the financials are available to be issued. During this period, unforeseeable events may happen in the normal course of business.<\/p>\n Chapter\u00a027 of the AICPA\u2019s Financial Reporting Framework for Small- and Medium-Sized Entities classifies subsequent events into two groups:<\/p>\n 1. Recognized subsequent events.<\/strong> These provide further evidence of conditions that existed on the financial statement date. An example would be the bankruptcy of a major customer, highlighting the risk associated with its accounts receivable. There are usually signs of financial distress (such as late payments or staff turnover) months before a customer actually files for bankruptcy.<\/p>\n 2. Nonrecognized subsequent events.<\/strong> These reflect conditions that arise after the financial statement date. An example would be a tornado or earthquake that severely damages the business. A business usually has little or no advanced notice that a natural disaster is going to happen.<\/p>\n Generally, the former must be recorded in the financial statements. The latter events aren\u2019t required to be recorded, but the details may have to be disclosed in the footnotes.<\/p>\n Disclosure<\/strong><\/p>\n To decide which events to disclose in the footnotes, consider whether omitting the information about them would mislead investors, lenders and other stakeholders. Disclosures should, at a minimum, describe the nature of the event and estimate the financial effect, if possible.<\/p>\n In some extreme cases, the effect of a subsequent event may be so pervasive that your company\u2019s viability is questionable. This may cause your CPA to re-evaluate the going concern assumption that underlies your financial statements.<\/p>\n When in doubt<\/strong><\/p>\n If you\u2019re unsure how to handle a subsequent event, we can help eliminate the guesswork. Contact us for more information.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Major events or transactions \u2014 such as a natural disaster, a cyberattack, a regulatory change or the loss of a large business contract \u2014 may happen after the reporting period ends but before financial statements are finalized. The decision of whether to report these so-called \u201csubsequent events\u201d is one of the gray areas in financial […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,7,10],"tags":[8,11,12],"class_list":["post-15966","post","type-post","status-publish","format-standard","hentry","category-aa","category-articles","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15966","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15966"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15966\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15966"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15966"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15966"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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