Subsequent events: AU-C 560 procedures and ASC 855 recognition

In this lesson you will

Identify the period AU-C 560 requires subsequent events procedures to cover
List the minimum procedures in AU-C 560.10
Classify an event as recognized or nonrecognized under ASC 855
Determine the evaluation date and disclosure an entity owes under ASC 855

What AU-C 560 asks of you

AU-C 560.07 defines subsequent events as events occurring between the date of the financial statements and the date of the auditor's report. Your job under AU-C 560.09 is to perform procedures designed to obtain sufficient appropriate audit evidence that all subsequent events requiring adjustment or disclosure have been identified. You are not expected to redo work that already gave you a satisfactory conclusion.

AU-C 560.10 sets the window: the procedures cover the period from the date of the financial statements to the date of the auditor's report, or as near to it as practicable. The nature and extent follow your risk assessment, and the procedures should include:

Obtaining an understanding of the procedures management has set up to identify subsequent events.
Inquiring of management and, when appropriate, those charged with governance about whether any subsequent events have occurred.
Reading minutes of owners, management and governance meetings held after year end, and asking about meetings whose minutes are not yet available.
Reading the latest subsequent interim financial statements, if any.

Most teams add targeted work: a review of disbursements and receipts after year end (the search for unrecorded liabilities often doubles as subsequent events evidence), debt agreements signed after year end, and the legal letter response. Those procedures support the AU-C 560 conclusion, but they do not replace the four items above.

Recognized vs nonrecognized under ASC 855

ASC 855 splits subsequent events in two, and AU-C 560.02 mirrors the split:

Type	Evidence about	Accounting
Recognized	Conditions that existed at the balance sheet date	Adjust the financial statements
Nonrecognized	Conditions that arose after the balance sheet date	Do not adjust; disclose when needed to keep the statements from being misleading

The test is when the underlying condition arose, not when management learned about it. A customer bankruptcy in February usually confirms a deteriorating credit position that existed at December 31, so it is recognized. A warehouse fire in February is a new condition, so it is nonrecognized and gets disclosed: the nature of the event and an estimate of its financial effect, or a statement that an estimate cannot be made.

Which date ends the evaluation

ASU 2010-09 set the rule now in ASC 855-10-25-1A and 25-2. An SEC filer, or a conduit bond obligor for conduit debt traded in a public market, evaluates subsequent events through the date the financial statements are issued. Every other entity evaluates through the date the financial statements are available to be issued. Under ASC 855-10-50-1, an entity that is not an SEC filer discloses the date through which subsequent events were evaluated and whether that date is the issued date or the available-to-be-issued date.

For a private company the available-to-be-issued date and your report date normally land on the same day, because management has approved the statements and taken responsibility for them, which is also what AU-C 700.43 needs before you can date the report. Check that the note's date and the report date agree.

Written representations and the file

AU-C 580.18 requires a representation that all subsequent events requiring adjustment or disclosure have been adjusted or disclosed, and AU-C 580.20 dates that letter as of the report date. Your subsequent events procedures, the representation letter and the report should all line up on one date.

Peer reviewers keep finding the same gaps:

Procedures performed at the end of fieldwork with nothing documented between that date and a report dated weeks later.
A note that says "evaluated through" a date different from the report date, with no explanation.
A significant event discussed with the client but not classified or evaluated in the file.
A subsequent events memo that lists procedures but never states a conclusion.

A short memo, such as the subsequent events memo template, keeps the procedures, the period covered, each event found and its classification in one place. For facts that surface after the report date, AU-C 560.12 through .18 apply instead; see the lesson on report dating and release.

Worked example

Harbor Lane Dental, Inc.: two events after year end

Harbor Lane Dental, Inc. has a December 31, 2025 year end. Overall materiality is $60,000. The report and the representation letter are dated March 20, 2026.

Event 1: On February 10, 2026, Coastal Dental Supply, a customer owing $84,000 at year end, files for bankruptcy. The trustee estimates unsecured creditors will recover 25%. The customer had missed payments since October, so the condition existed at December 31. This is a recognized event. Expected loss = $84,000 x (1 - 0.25) = $63,000. The existing allowance for this customer is $9,000, so the adjustment is $63,000 - $9,000 = $54,000. On its own that is below $60,000, but it is added to the summary of uncorrected misstatements if management does not book it, and the team proposes the entry.

Event 2: On March 3, 2026, a fire destroys supplies inventory that cost $250,000; insurance is expected to cover $180,000. The fire is a new condition, so it is nonrecognized. The uninsured loss estimate is $250,000 - $180,000 = $70,000. A loss of that size would leave the statements misleading if omitted, so ASC 855-10-50-2 requires the note to disclose the fire and the $70,000 estimate.

Conclusion: book $54,000, disclose the fire, and state in the note that subsequent events were evaluated through March 20, 2026, the date the statements were available to be issued.

Self-check

Answer each question before you open the answer.

What period must subsequent events procedures cover under AU-C 560.10?
Show answer
From the date of the financial statements to the date of the auditor's report, or as near to it as practicable. Procedures that stop at the end of fieldwork leave a gap if the report is dated later.
A lawsuit is filed in February for an injury that happened in November of the prior year. Recognized or nonrecognized?
Show answer
Recognized, because the condition (the injury and the resulting exposure) existed at the balance sheet date. The filing date only provides evidence about that condition, so the loss contingency is evaluated under ASC 450 as of year end.
Through what date does a private company evaluate subsequent events, and what must it disclose?
Show answer
Through the date the financial statements are available to be issued, per ASC 855-10-25-2. Because it is not an SEC filer, ASC 855-10-50-1 requires it to disclose that date and that it is the available-to-be-issued date.
Why should the representation letter carry the same date as the report?
Show answer
AU-C 580.20 requires the representations to be as of the report date, and the subsequent events representation in AU-C 580.18 is meaningful only if it covers the whole period your procedures covered.

Sources

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error