Video: Introduction to Subsequent Events

In this lesson, the focus is on understanding subsequent events and their importance in the context of historical financial statements. Nick Palazzolo, CPA, explains that subsequent events are events or transactions that occur after the balance sheet date but before the issuance of financial statements. These events, if material, may require adjustments or disclosures in the financial statements. The lesson walks through how to handle such events and their potential impact on the year being audited.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Diving into this wonderful topic of subsequent events, which, no, pops up on far as well, it feels like we're hitting two birds with one stone. Don't hit any birds, leave those poor birds alone. Let's dive in here. An independent auditor's report ordinarily is issued in connection with historical financial statements that purport to present the financial position at a stated date and results of operations and cash flows for a period ended on that date. Riveting, absolutely groundbreaking. That should quite click with everything you've seen. You're issuing an opinion on historical financial statements, stated date or period, awesome. Balance sheet is for a stated date, cash flows and income statement for a period. Cool, wonderful. Nothing groundbreaking there. However, events or transactions sometimes occur after the balance sheet date. That's unacceptable. Let's just make it so they don't happen. Unfortunately, we can't. So sometimes these events that happen after the balance sheet date, but prior to the issuance of financial statements, and if they have a material effect on the financial statements and require an adjustment or disclosure on the financial statements are going to require some attention. These occurrences here and after are referred to as subsequent events. I feel like I was doing a little bit, and this is the twilight zone. All right, so we're getting into subsequent events here, right? So yes, if items may not have happened in the year we're auditing, they could happen in the year after auditing. However, if those items affect the current year that we're auditing, we have to do something about it. What are we going to do? I've got a lot of content for you. Let's walk through it together.

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