What is a Subsequent Event?

Many financial statements disclose subsequent events for a church or ministry. What is a subsequent event and why are they important?

A material event that occurs after the balance-sheet date (say December 31, 2006) but prior to the auditor issuing the financial statements (say March 15, 2007) is a subsequent event. This event may require an adjustment to the financial statements or may require disclosure.

How do you determine if you adjust or disclose?

The first type of a subsequent event provides additional audit evidence that a transaction existed at the date of the balance sheet and usually affect estimates. For example:

A church has registered its pastors for a conference event and owes $10,000 in fees to another church. Subsequent to year-end, the registering church is hit by a tornado and is unable to pay the outstanding fees.

This subsequent event results in the fees being uncollectible and therefore management determines the receivable should be written off. This event required the financial statements to be adjusted subsequent to year-end.

The second type of subsequent event provides evidence of conditions that did not exist at the date of the balance sheet, but arose subsequent to year-end and should be reported or disclosed in order to keep the financial statements from being misleading. For example:

In February, a church kicks off a new capital campaign to raise $10 million for a new facility.

Management may consider this event a material transaction and would disclose the event in order to update the reader on significant transactions that could affect the comparability of future financial statements.

How does an auditor find a subsequent event? See the subsequent post…