FAR Subsequent Events: Do You Adjust or Just Disclose?
Subsequent-event questions become much easier when you ask one question: did the underlying condition already exist at the balance sheet date?
Start with the timeline
Separate the balance sheet date, the event date, and the financial statement issuance or availability date. An event can happen after year-end and still affect the year-end statements if it provides evidence about a condition that already existed.
Recognized subsequent event
A recognized event provides additional evidence about a condition that existed at the balance sheet date. For example, a customer's bankruptcy shortly after year-end may confirm that a year-end receivable was already impaired because the customer's financial problems existed before year-end.
Old condition, new information: adjust.
Nonrecognized subsequent event
A nonrecognized event relates to a condition that arose after the balance sheet date. The old financial statement numbers generally are not changed solely because of the later event, although material events may require disclosure.
Do not use the wrong shortcut
“Before issuance means adjust” is wrong. The period before issuance is the evaluation window. You still need to classify the event based on whether the underlying condition existed at year-end.
Use this decision tree
Did the condition exist at year-end?
Yes → recognized → adjust.
No → nonrecognized → then ask whether material disclosure is needed.
The takeaway
Recognized subsequent events reveal more about the past. Nonrecognized events describe something new that happened afterward.
Related Summit guides
FAQ
Does every material subsequent event get accrued?
No. A material nonrecognized event may require disclosure without adjustment.
Can an event happen after year-end and still be recognized?
Yes, if it provides evidence about a condition that existed at year-end.
Should I memorize examples?
Examples help, but the year-end-condition test is more transferable.