What does Type 2 subsequent event mean on the CPA exam?
Type 2 subsequent event. A nonrecognized subsequent event: the condition came into existence after the balance sheet date, so it is disclosed and never adjusted.
Defined against ASC 855-10-25.
Which CPA exam sections use Type 2 subsequent event?
Type 2 subsequent event appears in 6 CPA exam sections: AUD, BAR, FAR, ISC, REG, TCP.
What is the difference between Type 2 subsequent event and Type 1 subsequent event?
A Type 1 (recognized) event gives evidence about a condition that ALREADY EXISTED at the balance sheet date, so the statements are adjusted. A Type 2 (nonrecognized) event arises from a condition that came into existence AFTER the balance sheet date, so it is disclosed and never adjusted. The test is when the underlying condition arose, not when the entity found out. (ASC 855)
Other terms defined against ASC 855-10
- balance sheet date: The last day of the reporting period.
- subsequent event: Something that happens between the balance sheet date and the date the statements are issued.
- Type 1 subsequent event: A recognized subsequent event: it gives evidence about a condition that already existed at the balance sheet date, so the statements are adjusted.
Related terms
- balance sheet: A snapshot at one date of what the entity owns, what it owes, and the owners' residual.
- loss contingency: An existing condition involving uncertainty that may produce a loss, resolved by a future event.
- carrying amount: What an asset or liability is currently shown at on the balance sheet: its original amount adjusted for depreciation, amortization, impairment or accrual.
- income statement: The statement of what was earned and spent over a period, ending in net income.
- financial statements: The formal set an entity publishes: balance sheet, income statement, statement of cash flows, statement of changes in equity, and the notes.