Post Balance Sheet Events
Post balance sheet events, also known as subsequent events, are significant occurrences or transactions that happen after a company’s balance sheet date but before the financial statements are issued or available to be issued. These events may provide additional evidence about conditions that existed at the balance sheet date or represent conditions that arose subsequent to the balance sheet date.
There are two types of post balance sheet events:
- Adjusting events: These provide evidence of conditions that existed at the balance sheet date. For instance, if a customer who owed the company money goes bankrupt after the balance sheet date but before the financial statements are issued, it provides additional evidence that the customer’s account was uncollectible at the balance sheet date. The financial statements should be adjusted to reflect this information.
- Non-adjusting events: These are indicative of conditions that arose after the balance sheet date. For instance, a natural disaster damaging a significant portion of the company’s assets after the balance sheet date is a non-adjusting event. While this doesn’t require adjustment to the financial statements, it may be of such significance that it needs to be disclosed in the notes to the financial statements.
In general, companies are required to disclose both types of post balance sheet events in their financial statements in accordance with the accounting standards applicable in their jurisdiction (e.g., U.S. GAAP, IFRS).
Example of Post Balance Sheet Events
Let’s look at examples of both adjusting and non-adjusting post balance sheet events:
- Adjusting Event: Say a company, ABC Ltd, closes its accounts for the financial year ended December 31, 2023. On February 1, 2024, before the financial statements are issued, one of ABC Ltd’s major customers files for bankruptcy. This customer owed ABC Ltd a substantial amount of money, and the bankruptcy filing indicates that the debt was likely uncollectible at the balance sheet date. ABC Ltd would need to adjust their financial statements for the year ended December 31, 2023, to write off this receivable as bad debt.
- Non-Adjusting Event: Continuing with the same company, ABC Ltd, suppose that on February 15, 2024, there is a fire in one of its warehouses causing significant damage to its inventory. This event happened after the balance sheet date and did not exist at the balance sheet date. Hence, ABC Ltd does not need to adjust its December 31, 2023, financial statements to reflect this event. However, since the fire could have a significant impact on the company’s financial condition, it should be disclosed in the notes to the financial statements. The disclosure could mention the event, its financial effects, and that the effects have not been reflected in the financial statements.
