Subsequent Events. Because the Story Doesn't End at Year-End

In financial reporting, the numbers on the balance sheet don’t always tell the whole story. Some events occur after the balance sheet date but before the financial statements are finalized or issued. These are known as subsequent events, and under US GAAP, they can significantly affect how stakeholders interpret financial results.

This article breaks down what subsequent events are, how they are classified, and why they matter for both public and private companies.

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What Are Subsequent Events?

A subsequent event is an event that occurs:

• After the balance sheet date, but

• Before the financial statements are issued (public companies) or available to be issued (private companies).

Subsequent events provide critical context, ensuring financial statements remain accurate and not misleading to users.

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Types of Subsequent Events

1. Recognized (Type 1) Events

These events provide additional evidence about conditions that already existed at the balance sheet date.

• Action: The financial statements must be adjusted.

Example: A lawsuit recorded as a contingency on the balance sheet is settled after year-end but before the financial statements are issued. The settlement confirms the liability amount, so the balance sheet must be adjusted.

2. Non-Recognized (Type 2) Events

These events reflect conditions that did not exist at the balance sheet date.

• Action: No adjustment is required.

• Exception: If the event is significant enough that omitting it would make the financial statements misleading, it must be disclosed.

Examples of Type 2 disclosures:

• Entering into a merger or acquisition.

• Destruction of a facility due to a natural disaster.

• Significant changes in fair value of assets or liabilities.

• Foreign exchange rate fluctuations or new international tariffs.

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Public vs. Private Companies: Issued vs. Available to Be Issued

The evaluation period for subsequent events differs depending on whether the company is public or private:

• Private Companies

  • Evaluate subsequent events through the date the financial statements are available to be issued.

  • This means the statements have been prepared and finalized but not yet distributed.

  • Private companies must also disclose the evaluation date in the footnotes.

    
    

• Public Companies

  • Evaluate subsequent events through the date the financial statements are issued.

  • Issuance occurs when the financials are formally distributed (e.g., filed with the SEC).

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Why the Difference Matters

This distinction creates a longer evaluation period for public companies. A private company’s review ends once the statements are finalized. Public companies, however, must continue evaluating subsequent events until the statements are officially released.

This ensures investors and regulators receive the most up-to-date picture possible of the company’s financial condition.

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Final Thoughts

Subsequent events are a critical piece of US GAAP disclosure requirements. They ensure that financial statements don’t just reflect conditions on the balance sheet date but also capture meaningful developments leading up to issuance.

By properly recognizing, disclosing, and differentiating between Type 1 and Type 2 events, companies can maintain transparency, avoid misleading users, and strengthen trust in their financial reporting.