CPA FAR Exam-Subsequent Events-Disclosures and Footnotes-Darius Clark-

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The CPA FAR Exam expects a candidate to identify subsequent events that require disclosure and some that require adjustment to the financial statements. Under U.S. GAAP a subsequent event is an event or transaction that occurs after the balance sheet date but before the financial statements are issued (public companies) or available to be issued (private companies).
For publicly traded companies (SEC filers, issuers): Management must evaluate subsequent events through the date the financial statements are issued (when they are widely distributed to users and filed with the SEC).
For privately held companies (non-SEC filers): Management must evaluate subsequent events through the date the financial statements are "available to be issued", which means when all necessary approvals have been obtained, and the financials are ready for release to users (e.g., lenders, investors, regulators).
Type 1 or Recognized subsequent events: These are events that provide additional evidence about conditions that existed at the balance sheet date and require adjustments to the financial statements.
A major customer declares bankruptcy after year-end due to financial difficulties that were not sudden, but existed before year-end, year end accounts receivable needs to be adjusted.
A settlement of a lawsuit that was pending at year-end, Recognize additional liability at year end if settlement amount confirms an existing obligation that is already on the balance sheet at year end.
Type 2: Non-Recognized: Events that did not exist at the balance sheet date but are significant enough that they should be disclosed in the footnotes. A footnote must describe the nature of the event and estimate its financial impact (if possible). If an estimate cannot be made, the company should state that fact.
Examples include: Customer declares bankruptcy suddenly, without already being in known distress. A fire destroys a major facility after year-end, company issues new debt or equity securities after year-end, merger or acquisition agreement is signed after year-end, A new lawsuit is filed after year-end that could materially impact future operations, footnote disclosure only, no need to restate year end financials.