Lesson: Examples of Subsequent Events

In this lesson, Nick Palazzolo, CPA, discusses examples of subsequent events that should be investigated if they occur after the period end and before the auditor's report issuance date. He elaborates on the two types of subsequent events: type 1 events and type 2 events. Type 2 events should be disclosed but not accrued, and examples include loss of a factory due to a disaster, loss of a significant customer, mergers and acquisitions, sales of major accounts, and significant declines in fair value of assets. Type 1 events, on the other hand, should be accrued for the current period. Examples include resolutions of lawsuits that arose during the audited year and new information discovered about items not accounted for in the current period's financial statements. The lesson provides valuable insight into the importance of considering these events from the perspective of a shareholder, as the auditor's role is to serve the best interests of the company's owners.