Subsequent Events - Private Companies Should Pay Attention.
In connection with the Financial Accounting Standards Board’s (FASB) codification project, the FASB has put together a new standard that incorporates the guidance in Auditing Standard 560 – Subsequent Events. This new standard is not expected to change current accounting practices. FAS 165 is applicable for interim and annual periods ending after June 15, 2009. This will be the second quarter 10Q for calendar year companies. (I hope you didn't forget.)
1. What are the changes to the accounting for subsequent events?
There are two changes with the new standard:
a. The date through which management evaluated subsequent events will be disclosed in the financial statements and whether that date is the date the financial statements were issued or were available to be issued.
b. Subsequent events are to be evaluated through the date the financial statements are issued or are available to be issued. The term “available to be issued” applies to non-public companies that do not issue or widely disburse their financial statements. There is no change in the date of evaluation for public companies.
2. What is the accounting for subsequent events?
FAS 165 applies to the accounting for and disclosure of subsequent events not addressed by other applicable generally accepted accounting principles (GAAP) such as FIN 48, FAS 128 or FAS 5. The date through which subsequent events have been evaluated and whether the date is the date the financial statements were issued or were available to be issued will be disclosed in the interim and annual financial statements.
A subsequent event is an event or transaction that occurs after the balance sheet date but before the financial statements are issued or are available to be issued. The FASB changed the names of the kinds of subsequent events. Type 1 subsequent events are now recognized subsequent events and Type 2 subsequent events are now non-recognized subsequent events. I think this is a good change because I could never remember which was which.
A recognized subsequent event is an event or transaction that provides additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. A recognized subsequent event is to be recognized in the financial statements as if they occurred before the balance sheet date.
A non-recognized subsequent event is an event or transaction that provides evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before the financial statements are issued or are available to be issued. An entity should disclose non-recognized subsequent events that are of such a nature that omitting them would cause the financial statements to be misleading. The nature of the event and an estimate of its financial effect should be disclosed. An entity should also consider providing pro forma financial statements if the non-recognized subsequent event is significant.
If an entity is required to re-issue its financial statements, subsequent events that have occurred between the date the financial statements were issued and the date they were re-issued should not be recognized.
So the only real change for public companies is making sure to disclose the date through which you evaluated subsequent events. (Which needs to be the file date.)
For private companies the big change is a definition of "available to be issued". This is the date that needs to be disclosed in your financial statements that are given to third parties such as your bank or investor.
So write back and let me know if this caused you any problems? Did any one forget to disclose the date?
Linda is a CPA living in Southwestern Ohio, working as a research accountant for an investor-owned publicly traded utility company. She specializes in implementing new FASB and SEC requirements and FAS 133 derivative issues. In her role at the utility she has encountered many issues and written many memos, so send in your implementation and derivative issues and Linda will help figure out an answer.