Identify the two types of subsequent events and indicate how each of them would affect the...

Identify the two types of subsequent events and indicate how each of them would affect the financial statements or the audit report.

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Expert Solution

A subsequent event occurs after the balance sheet date but before issue of the financial statements gore the period. Such events may or may not require disclosure in financial statements.

Two type of subsequent events are -

1) Additional Information - when additional information is available about the conditions which are already existing on the balance sheet date. According to the principles of GAAP this subsequent event should be included in the financial statements, for example if company had an information that there is going to be a bad debt of a debtor for the invoices issued before balance sheet date and customer goes bankrupt, this should be reported in financial statements for that period.

2) New Events - when an event provides information about conditions that did not exist before or on the balance sheet date, these events are called new events. If these events occurs between the balance sheet date and date of issuing financial statements, these events should not be incorporated in the financial statements. Examples of these events may include sale of equity, business mergers/combinations, significant guarantee and commitment made, etc.

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ekkarill92 answered 1 year ago

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