Lesson: Recognized Subsequent Events

Instructor: Nick Palazzolo

In this lesson, the concept of recognized subsequent events is thoroughly explained, along with the factors which determine when the financial statements are considered issued. The lesson further discusses two types of treatment for subsequent events: recording journal entries and disclosing. Additionally, two common recognizable subsequent events are examined – settlement of litigation and loss on an uncollectible receivable. Through examples and detailed explanations, Nick Palazzolo, CPA, clarifies the process of recognizing subsequent events and adjusting financial statements accordingly. This comprehensive lesson aims to ensure that learners understand the importance and the process of recognizing and handling subsequent events in accounting.

Updated: June 22, 2023 Create an account

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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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Let's talk about recognizing those subsequent events. Well, a subsequent event, as we've talked about, it's an event that occurs between the balance sheet date and the date of the financial statement issuance. Memorize absolutely everything here. And when are the financial statements considered issued? Well, I've talked about this, but now we're seeing it in writing. It's when they comply with US GAAP. So let's say we issue the financial statements to everyone, right? Send it out, mail it to everyone, post it online. But if they don't conform with US GAAP, they're not considered issued. And all unnecessary approvals have been obtained. Well, if there's no sign off from, let's say, the SEC or whoever needs to sign off on it, then they're not considered issued. And then also when they're readily available to the users of financial statements who are investors or creditors, if these financial statements are not available to people, they're not considered issued. Memorize these two components. You may see them on the exam. Now, just like we talked about, there are two treatments for subsequent events, in addition to doing nothing if the event is immaterial or not really a subsequent event, which that can come up in multiple choice questions. It might be a super immaterial subsequent event, in which case you just do nothing. And also there could be examples where it's not actually a subsequent event, such as something that happens next year and it's a normal. So let's just say we're auditing year one. Let's actually address that right now. Let's say we're auditing year one. And then let's say February of year two, the question says they bought a piece of machinery. Now, if it doesn't say it's like a material transaction, it's just in the normal course

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