Reminder about FAS no. 165, Subsequent Events

Just a reminder that FAS no. 165, Subsequent Events, is effective for interim or annual financial periods ending after June 15, 2009. The FASB issued this Standard to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It sets forth:

• The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements
• The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements
• The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.
  

FAS no. 165 does not result in significant changes in the subsequent events that an entity reports through recognition or disclosure in its financial statements. It does however,

• Introduce the concept of financial statements being available to be issued.
• Require the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date whether that date represents the date the financial statements were issued or were available to be issued.

This disclosure then alerts all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented.
Key Terms
This Standard contains a number of key terms, including a description of what is meant by "financial statements are available to be issued." Let’s look at three of these key terms.
1. Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. The two types of subsequent events are (1) events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (recognized subsequent events) and (2) events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (nonrecognized subsequent events).
2. Financial statements are issued. Financial statements are considered issued when they are widely distributed to shareholders and other financial statement users for general use and reliance in a form and format that complies with GAAP.
3. Financial statements are available to be issued. Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity’s management and corporate governance structure as well as statutory and regulatory requirements. An entity that has a current expectation of widely distributing its financial statements to its shareholders and other financial statement users, including a public entity shall evaluate subsequent events through the date that the financial statements are issued. All other entities shall evaluate subsequent events through the date that the financial statements are available to be issued.

Disclosure
This Standard requires that the entity disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued.

In addition some nonrecognized subsequent events may be of such a nature that they must be disclosed to keep the financial statements from being misleading. In that case the entity shall disclose:
a. The nature of the event
b. An estimate of its financial effect or a statement that such an estimate cannot be made.

The entity also shall consider supplementing the historical financial statements with pro forma financial data, if a nonrecognized subsequent event is so significant that disclosure can best be made by means of pro forma financial data.

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