Subsequent Events
Subsequent events are a quick 1-2 MCQ topic — but candidates lose easy points by mixing up the two types. Type 1 (recognized): the condition existed at the balance sheet date; you adjust the financial statements. Type 2 (non-recognized): a new event occurred after year-end; you disclose only. The AICPA trap: a lawsuit settled after year-end for a loss that was probable at year-end is Type 1 — adjust, not just disclose. A hurricane that destroys inventory after year-end is Type 2 — new event, disclose only. Ask yourself: 'Did the condition exist at year-end?' to classify correctly.
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What AICPA Wants You to Know
- 1Define the subsequent event evaluation period
- 2Distinguish Type 1 (recognized) from Type 2 (non-recognized) subsequent events
- 3Apply the correct accounting treatment to each type
- 4Identify the required disclosure for subsequent events, including the evaluation date
- 5Recognize the difference between SEC registrants and non-public entities for issuance dates