Definition
The financial accounting term post balance sheet events refers to the disclosure of transactions and events occurring after the date of the balance sheet, but before the financial statements of the company have been issued to the public.
Explanation
Post balance sheet events, also known as subsequent events, are one of several types of information that is supplementary to the items appearing on a company's balance sheet. It can often take weeks after the close of an accounting period until the data is assembled into a financial statement. If materially significant information is gained during that time, disclosure is required. Generally, there are two categories of events or transactions that occur after the balance sheet date that can have a material effect on financial statements and need to be disclosed:
Events Requiring Adjustment: includes conditions that existed at the balance sheet date that affect the estimates used in the preparation of the company's financial reports. If material, these events require an adjustment to the company's financial statements. For example, the company may have estimated inventory and receivables at a certain level at yearend, but a positive review on a popular website resulted in an unexpected spike in sales.
Events Requiring Disclosure: includes conditions that did not exist at the balance sheet date but have a material effect on the financial condition of the company. These events should be addressed either through notes, supplementary tables of data or even pro-forma statements. For example, the company may have acquired another business, settled a lawsuit, or experienced a significant loss or gain on marketable securities.
Related Terms
gain and loss contingencies, contracts and negotiations, valuations and accounting policies, financial statements
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