Question

Are there any transactions or events that have occurred since year end 20×2 that we should disclose as subsequent events this year? As a matter of fact, yes, there is one thing. We are implementing a retirement plan for all HydroQual employees as of January 1,20X3.

Answer 1

The implementation of a retirement plan for HydroQual employees as of January 1, 20X3 should be disclosed in the financial statements as a non-recognized subsequent event. It is important for users' evaluations but does not require adjusting the financial statements for 20X2.

Step-by-step explanation:

Subsequent events are events that occur after the balance sheet date but before the financial statements are issued or available to be issued. According to the accounting standards, there are two types of subsequent events: recognized subsequent events and non-recognized subsequent events. Recognized events provide additional evidence about conditions that existed at the date of the balance sheet and may require adjustments to the financial statements. Non-recognized events, on the other hand, are indicative of conditions that arose after the balance sheet date and do not require adjustments but should be disclosed if they are of such importance that nondisclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions.

In the case of HydroQual, the implementation of a retirement plan for all employees as of January 1, 20X3 would be considered a non-recognized subsequent event. This event doesn't change the conditions as of the balance sheet date of December 31, 20X2, yet it is significant enough that it would need to be disclosed in the notes to the financial statements for the users' benefit. This disclosure would usually include a description of the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.