Subsequent events (also called events after the reporting period) are the events that occur after the date of financial statements but before their authorization for issue. These are classified into adjusting events and non-adjusting events.
IFRS uses the term ‘events after the reporting period’ in IAS 10 which is the standard which provides guidance on subsequent events. Subsequent events are also referred to as ‘events after the balance sheet date.’ In the context of subsequent events and their impact on financial statements, it is important to understand the different cut-off dates involved.
Date of financial statements
The date of the financial statements refers to the balance sheet date, the date on which the balance sheet (also called statement of financial position) is prepared. It is also the last date covered by the related income statement and statement of cash flows. For example, if a balance sheet is prepared to show the assets, liabilities and equity of a company as at 31 December 20X1, 31 December 20X1 would be the date of the financial statements.
Date of issue of financial statements
There is a slight difference between IFRS and US GAAP in how the cut-off date is defined for the purpose of subsequent events. IFRS requires evaluation of subsequent events through the date of authorization of financial statements for issue but US GAAP creates a distinction between the date financial statements become available for issue and the date financial statements are issued. US GAAP requires entities required to file their financial statements with the SEC to evaluate events through the date of issue of financial statements but requires all other entities to evaluate events through the date financial statements are available for issue.
Financial statements are authorized for issue when they are authorized for issue by those charged with governance and control. In most cases, this means the company’s board of directors.
If financial statements are to be approved by the shareholders in their meeting they are deemed authorized for issue when the board of directors authorizes them for issue to shareholders. If the financial statements are to be approved by a supervisory board consisting solely of non-executive directors, they are deemed issued when they are presented to the supervisory board by the management.
SE Ltd. prepares its financial statements for the year ended 31 December 20X1 under IFRS. The financial statements are to be reviewed and approved by the board of directors on 15 February 20X2. Further, the financial statements are to be approved by the shareholders in their annual general meeting to be held on 1 March 20X2.
All events taking place after 31 December 20X1 but before 15 February 20X2 are to be deemed subsequent events (or events after the reporting period). The date financial statements are issued is the date when the board of directors authorizes them for issue to the shareholders. Events after 15 February 20X2 are irrelevant for the financial statements for the year ended 31 December 20X1.
There are two types of events after the balance sheet date: adjusting events (also known as recognized subsequent events under US GAAP) and non-adjusting events (non-recognized subsequent events).