5.12 Subsequent Events | DART – Deloitte Accounting Research Tool

When evaluating potential disclosures in the financial statements for inclusion in a company’s initial registration statement, management should consider subsequent events through the date on which the financial statements are issued or are available to be issued. Such an evaluation should include consideration of whether events are recognized (i.e., “Type 1”) or nonrecognized (i.e., “Type 2”) subsequent events, as described in ASC 855.

An initial registration statement may be amended several times before ultimately becoming effective. Each time the registration statement is amended, financial statements included in the registration statement are reissued. Questions often arise regarding the date through which subsequent events should be evaluated when financial statements are revised or reissued as a result of a registration statement amendment.

If new events are identified after the original registration statement has been filed, but before the subsequent amendment of a registration statement, financial statements included in the amendment may need to include disclosure of additional subsequent events but would not contain recognition of the impact of such events (unless a material error was identified). This approach is based on a reissuance framework — the premise that financial statements included in the amendment represent a reissuance of financial statements for subsequent-event purposes. The reissuance guidance in ASC 855-10-25-4 states:

An entity may need to reissue financial statements, for example, in reports filed with the SEC or other regulatory agencies. After the original issuance of the financial statements, events or transactions may have occurred that require disclosure in the reissued financial statements to keep them from being misleading. An entity shall not recognize events occurring between the time the financial statements were issued or were available to be issued and the time the financial statements were reissued unless the adjustment is required by GAAP or regulatory requirements. Similarly, an entity shall not recognize events or transactions occurring after the financial statements were issued or were available to be issued in financial statements that are later reissued in comparative form along with financial statements of subsequent periods unless the adjustment meets the criteria stated in this paragraph.

To the extent that new information is discovered after the financial statements were originally available to be issued, management should determine whether such currently available information represents (1) information that management was aware of and misapplied or (2) information that management should have been aware of. Errors identified during the preparation of a registration statement amendment that meet the criteria for the correction of an error or for a prior-period adjustment should be evaluated and accounted for in accordance with ASC 250. Management should use judgment in performing such an evaluation.

For Type 2 subsequent events, unless a material subsequent event was accounted for or disclosed in a subsequent interim period presented in the registration statement, the annual financial statements would generally need to be updated to disclose such an event. This disclosure may be provided in a separate note to the annual financial statements captioned as “Subsequent Event (Unaudited).” In certain circumstances, the annual financial statements may be retrospectively revised (e.g., discontinued operations, change in segments, stock split). In such cases, the evaluation of subsequent events must be updated to reflect the retrospective change.

In addition, the entity’s financial statements included in the IPO registration statement must include disclosure of the date through which subsequent events were evaluated. When financial statements are revised, ASC 855 requires an entity to disclose the dates through which subsequent events have been evaluated in both the originally issued financial statements and the retrospectively revised financial statements.