FARS case example _ A - FARS Case One Subsequent Event and...

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FARS Case One – Subsequent Event and Related Gain Contingency Considerations FARS Guidance through AU§560, SEC99-2, and FASB Statement No. 165 Section 855-10-05-2 of the Accounting Standards Codification directs ”Those seeking guidance on subsequent events [to] generally look [at] AICPA AU Section 560 of the Codification of Statements on Auditing Standards, Subsequent Events.” 1 Review of AICPA AU Section 560, Subsequent Events AU§560.01 provides an overview of subsequent events, which define the necessary effect (a material effect) and forms of treatment for such events (either adjustment or disclosure). Events that are subsequent (following “the balance-sheet date, but prior to the issuance of the financial statements, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements.” 2 Essentially, events or transactions occurring after the balance sheet date used for financial reporting purposes that have a material effect on such statements require either adjustment or disclosure to the effected statements. AU§560.02 states that there are two types of subsequent events that require consideration by management and evaluation by the independent auditor(s). AU§560.03 details the first type of subsequent event, which involves the discovery of information that alters estimates of the figures on the balance sheet at the date used for financial reporting purposes. The paragraph goes on to explain that, “All information that becomes available prior to the issuance of the financial statements should be used by management in its evaluation of the conditions on which the estimates 1 Section 855-10-05-2. (n.d.). In FASB Accounting Standards Codification . Retrieved June 01, 2009, from http://asc.fasb.org/section&trid=2122777 2 AU Section 560, Subsequent Events. (2001, December 15). In American Institute of Certified Public Accountants . Retrieved June 01, 2009, from http://www.aicpa.org/download/members/div/auditstd/AU- 00560.PDF
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EURONET WORLDWISE, INC. 2 were based. The financial statements should be adjusted for any changes in estimates resulting from the use of such evidence.” 3 The second type of subsequent event is detailed in AU§560.02 and involves “conditions that did not exist at the date of the balance sheet being reported on but arose subsequent to that date.” 4 Treatment for these types of events would not alter the balance sheet values but would instead either be disclosed within the financial statements or, assuming a significant event has occurred, a pro-forma financial statement may be appropriate to avoid misleading statement users. Furthermore, AU§560.07 indicates that activities such as the settlement of estimated liabilities would require a direct adjustment to the financial statements because such events typically occur due to the culmination of events over a long period of time. In the case of Euronet Worldwide, it is important to note that the settlement of liabilities is different from the retirement of liabilities.
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