Post balance sheet events definition
/What are Post Balance Sheet Events?
A post balance sheet event is something that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. The two types of post balance sheet events are as follows:
An event provides additional information about conditions in existence as of the balance sheet date, including estimates used to prepare the financial statements for that period.
An event provides new information about conditions that did not exist as of the balance sheet date.
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When to Include Post Balance Sheet Events in Financial Statements
The financial statements should include the effects of all post balance sheet events that provide additional information about conditions in existence as of the balance sheet date. This rule requires that all entities evaluate events through the date when financial statements are available to be issued, while a public company should continue to do so through the date when the financial statements are actually filed with the Securities and Exchange Commission. Examples of situations calling for the adjustment of financial statements are:
Lawsuit. If events take place before the balance sheet date that trigger a lawsuit, and lawsuit settlement is a post balance sheet event, consider adjusting the amount of any contingent loss already recognized to match the amount of the actual settlement.
Bad debt. If a company issues invoices to a customer before the balance sheet date, and the customer goes bankrupt as a post balance sheet event, consider adjusting the allowance for doubtful accounts to match the amount of receivables that will likely not be collected.
The date when financial statements are available to be issued is when they have been completed by the reporting entity and all required approvals have been obtained for their release (such as the approval of the board of directors).
When Not to Include Post Balance Sheet Events in Financial Statements
If there are post balance sheet events that provide new information about conditions that did not exist as of the balance sheet date, and for which the information arose before the financial statements were available to be issued or were issued, these events should not be recognized in the financial statements. Examples of situations that do not trigger an adjustment to the financial statements if they occur after the balance sheet date but before financial statements are issued or are available to be issued are:
Changes in the value of assets due to changes in exchange rates
Destruction of company assets
Entering into a significant guarantee or commitment
Sale of equity
Settlement of a lawsuit where the events causing the lawsuit arose after the balance sheet date