What is a Type 2 non-adjusting subsequent event?

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AcadiFi · Accepted Answer

Type 2 (non-adjusting) subsequent events relate to conditions that AROSE AFTER the balance sheet date. No adjustment to the financials — but disclose the nature and estimated financial effect (or a statement that it can't be estimated) if material. Common examples: (1) major casualty loss (fire, hurricane) occurring post year-end; (2) issuance of bonds or equity after year-end; (3) large acquisition or divestiture announced after year-end; (4) settlement of litigation where the underlying event occurred after year-end; (5) major FX fluctuations. Example: Summit Peak Manufacturing's December 31, 2025 financials are finalizing on March 3, 2026. On February 20, 2026, a magnitude 7.1 earthquake damages the Osaka plant with estimated $68M of property damage and 6-month production loss. This is Type 2 — the earthquake occurred AFTER year-end, so FY2025 financials aren't adjusted. However, a prominent footnote discloses: event description, estimated $68M damages, expected insurance recovery of $45M, and impact on Q1 2026 operations. If the effect would be so material that users would be misled by not disclosing, non-disclosure violates both US GAAP (ASC 855) and IFRS (IAS 10).

What is a Type 2 non-adjusting subsequent event?

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