A subsequent event disclosure is the note that tells a reader about something that happened after the balance sheet date but before the financial statements were issued or available to be issued. It exists because those events fall into two kinds, and only one of them changes the numbers: the other kind leaves the statements alone, and gets a note only where one is needed to keep them from being misleading.
The whole of the practical work is sorting an event into the right kind. That sort turns on a single question, whether the event gives evidence about conditions that already existed at the balance sheet date, and the answer decides between adjusting the accounts and writing a note.
Statement No. 165 now sits in the Codification at Topic 855, where the disclosure paragraph was amended by FASB Accounting Standards Update 2010-09. The paragraph numbers below are the Statement’s own.
The Sorting Question
An entity recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in preparing them (FASB, Statement of Financial Accounting Standards No. 165, paragraph 8). Those are recognized subsequent events, and they change the reported figures.
An entity does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after it (FASB, Statement of Financial Accounting Standards No. 165, paragraph 10). Those are nonrecognized subsequent events, and they are candidates for disclosure only.
The same pair of receivable losses shows the whole distinction. A loss on a trade receivable caused by a customer’s deteriorating financial condition leading to bankruptcy after the balance sheet date ordinarily indicates conditions that existed at that date, so the bankruptcy filing is considered in determining uncollectible receivables at the balance sheet date (FASB, Statement of Financial Accounting Standards No. 165, paragraph 9). A loss on receivables resulting from conditions arising after the balance sheet date, such as a customer’s major casualty, is nonrecognized (FASB, Statement of Financial Accounting Standards No. 165, paragraph 11).
Two customers, two identical write-offs, two different answers, because the deterioration was already underway in one case and the casualty had not happened in the other.
Events That Change the Numbers
The standard’s examples of recognized subsequent events are narrow and worth knowing by heart.
Litigation settled after the balance sheet date for an amount different from the recorded liability, where the events that gave rise to the litigation took place before that date, means the settlement amount is considered in estimating the liability recognized at the balance sheet date (FASB, Statement of Financial Accounting Standards No. 165, paragraph 9).
Subsequent events affecting the realization of assets such as receivables and inventories, or the settlement of estimated liabilities, are recognized when they represent the culmination of conditions that existed over a relatively long period of time (FASB, Statement of Financial Accounting Standards No. 165, paragraph 9).
Culmination is the operative word. These events do not create new information, they resolve an estimate the balance sheet already contained.
Events That Never Adjust the Numbers
The nonrecognized list is longer and is where most disclosure notes come from (FASB, Statement of Financial Accounting Standards No. 165, paragraph 11):
- Sale of a bond or capital stock issued after the balance sheet date but before the statements are issued or available to be issued
- A business combination occurring in that window
- Settlement of litigation where the event giving rise to the claim took place after the balance sheet date
- Loss of plant or inventories from fire or natural disaster occurring after the balance sheet date
- Losses on receivables from conditions arising after the balance sheet date, such as a customer’s major casualty, a fire or a flood
- Changes in the fair value of assets or liabilities, financial or nonfinancial, or in foreign exchange rates, in that window
- Entering into significant commitments or contingent liabilities in that window, for example by issuing significant guarantees
The issuer auditing standard carries the older and shorter version of the same list, which is where this guidance started. It names five events of the second type that require disclosure but should not result in adjustment: sale of a bond or capital stock issue, purchase of a business, settlement of litigation where the claim arose after the balance sheet date, loss of plant or inventories from fire or flood, and losses on receivables from conditions arising after the date (PCAOB, AS 2801, paragraph .06).
What a Disclosure Has to Contain
Two requirements, and they are easy to read past because only one of them depends on an event happening.
The first applies to every set of statements a non-SEC filer issues, not only those with an event to report. If an entity is not an SEC filer, the entity discloses the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date they were available to be issued (FASB, Accounting Standards Update 2010-09, paragraph 855-10-50-1). That sentence is the reason a subsequent events note exists in statements where nothing happened, and which of the two dates an entity uses is settled in issuance.
The second applies to the events themselves. Where a nonrecognized subsequent event is of such a nature that it must be disclosed to keep the financial statements from being misleading, the entity discloses the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made (FASB, Statement of Financial Accounting Standards No. 165, paragraph 13).
Note the two permitted answers on the second element. An estimate, or an explicit statement that one cannot be made. Silence is not one of them.
The wording below is illustrative, written for a hypothetical private company that is not an SEC filer with a calendar year end, so it uses the available-to-be-issued date.
Note 14. Subsequent Events
The Company has evaluated subsequent events through March 14, 2026, the date
these financial statements were available to be issued.
On February 2, 2026, a fire destroyed the Company's Belmont warehouse and the
inventory held there. The carrying amount of the building and inventory at the
balance sheet date was $1,850,000. The Company filed an insurance claim on
February 9, 2026, and the recoverable amount cannot yet be estimated, so no
receivable has been recorded.That wording carries what the standard asks for: the evaluation date and which of the two dates it is, then the nature of the event and its financial effect. It happens to use both permitted answers on the second element, an estimate for the loss and a statement that the recovery cannot yet be estimated.
When a Note Is Not Enough
Occasionally a nonrecognized event is so significant that disclosure is best made by supplementing the historical financial statements with pro forma financial data giving effect to the event as if it had occurred on the balance sheet date, sometimes presented as a balance sheet only, in columnar form on the face of the historical statements (FASB, Statement of Financial Accounting Standards No. 165, paragraph 14).
That is a real option rather than a theoretical one, and a large acquisition or a refinancing right after year end is the case it is built for. The pro forma presentation itself is treated in pro forma financial statements.
Where the subsequent event bears on whether the entity can continue at all, a separate and heavier assessment applies, and it is in going concern. Where it bears on a loss that was already possible at year end, the recognition threshold in contingency governs.
Common Questions
Type 1, the recognized event, provides additional evidence about conditions that existed at the balance sheet date, so it adjusts the reported amounts (FASB, Statement of Financial Accounting Standards No. 165, paragraph 8). Type 2, the nonrecognized event, relates to conditions that arose after that date, so it never adjusts the numbers and is disclosed where a note is needed to keep the statements from being misleading (FASB, Statement of Financial Accounting Standards No. 165, paragraphs 10 and 13). The test is always about when the underlying condition existed, never about when the paperwork arrived.
For an entity that is not an SEC filer, which is most private company work, yes: one of the two disclosures does not depend on an event occurring. The entity still has to disclose the date through which subsequent events were evaluated and whether that is the issuance date or the available-to-be-issued date (FASB, Accounting Standards Update 2010-09, paragraph 855-10-50-1). An SEC filer was relieved of that disclosure by the same amendment.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can grade that year-end disclosure work on its own files through a trial task before a client engagement depends on it.
