Subsequent Events: Type I (Recognised) vs Type II (Non-Recognised)
By SimplyCPA · 11 October 2026
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- Subsequent events: Events between the balance sheet date and the date the financial statements are issued (or available to be issued).
- Type I — recognised: Give more evidence about conditions that existed at the balance sheet date. Adjust the financial statements.
- Type II — non-recognised: Arise from conditions that came into existence after the balance sheet date. Disclose them if material; don't adjust.
- The test: Did the underlying condition exist at year-end? Yes = Type I; no = Type II.
- Auditor's role: Perform procedures up to the report date and, if a later event is disclosed, consider dual-dating the report.
The core test
US GAAP (ASC 855, Subsequent Events) splits post-year-end events by asking one question: did the condition exist at the balance sheet date?
| Type I — recognised | Type II — non-recognised | |
|---|---|---|
| Condition existed at year-end? | Yes | No |
| Accounting | Adjust the financial statements | Disclose if material; no adjustment |
| Examples | A customer whose finances were already deteriorating goes bankrupt in February; a lawsuit about a pre-year-end incident settles for more than accrued; inventory sold below cost after year-end, showing its year-end value was lower | A fire or flood destroys a warehouse in February; the company issues shares or bonds; a business acquisition; a customer's bankruptcy caused by a post-year-end disaster |
Example: At December 31 a customer owes $200,000. On February 10 the customer files for bankruptcy because of losses it had been suffering all year. The bankruptcy confirms the receivable was impaired at year-end — a Type I event, so the allowance is increased. If instead the customer's only factory burned down on February 1, causing the bankruptcy, the condition arose after year-end — Type II, disclosure only.
How far the evaluation runs
- SEC filers evaluate subsequent events through the date the financial statements are issued.
- Other entities evaluate through the date they are available to be issued, and disclose that date.
The auditor's procedures
The auditor performs procedures covering the period from the balance sheet date to the date of the auditor's report. Typical procedures:
- Reading the latest interim financial statements and board minutes.
- Inquiring of management and legal counsel about litigation, commitments and unusual adjustments.
- Obtaining written representations dated as of the report date.
Dual dating
If a Type II event that occurs after the report date but before the report is released is disclosed in a note, the auditor can either redate the whole report (extending procedures to the new date) or dual-date it — for example, "March 5, 2027, except for Note 14, as to which the date is March 19, 2027". Dual dating limits the auditor's responsibility for later events to that one note.
Subsequently discovered facts
Facts discovered after the report is released are a different topic. If they existed at the report date and would have changed the report, the auditor discusses them with management and, if the statements are revised, takes steps to prevent continued reliance on the old report.
Practise this in completing the audit and FAR subsequent events.