Required information

Subsequent Events$--$Two Types

Read the overview below and complete the activities that follow.

Oftentimes a CPA's opinion on the fairness of the financial statements may be changed by subsequent events.

Subsequent events are events that happen after the balance sheet date but before the financial statements are issued.

Auditors have responsibility for evidence not available at the close of the period but which becomes available before the

auditors finish their fieldwork and issue their opinion. Subsequent events are divided into two categories: Type $1$ are those

providing additional evidence about facts existing on or before the balance sheet date and Type $2$ are those involving

facts coming into existence after the balance sheet date.

CONCEPT REVIEW:

Accounting standards divide subsequent events into two categories$--$those that provide more information about facts that

already existed at the balance sheet date $($Type $1)$ and those that involve facts after the balance sheet date $($Type $2).$

Match each definition or example with the correct type of subsequent event.

Conditions that have come into

existence after the balance sheet

date.

Additional evidence about

conditions that existed at the

balance sheet date.

A lawsuit that was in progress as

of year$-$end was settled shortly

thereafter.

A flood damages a significant

portion of the operating facility

after year$-$end.

During the audit, a customer with

a large A$/$R balance at year$-$end

declares bankruptcy.

Type $1$

Type $2$