A subsequent event is an important event that occurs between the balance sheet date and the date of issuance of the annual report. Subsequent events must have a significant or material effect on the financial statements. A subsequent event does not include the recurring economic fluctuations associated with the economy and with free enterprise, such as a strike or management change. A subsequent event is considered to be important enough that without such information the statement would be misleading if the event were not disclosed. The recognition and recording of these events requires the professional judgment of an accountant or external auditor.

Events that effect the financial statements at the date of the balance sheet might reveal an unknown condition or provide additional information regarding estimates or judgments. These events must be reported by adjusting the financial statements to recognize the new evidence.

Events that relate to conditions that did not exist on the balance sheet date but arose subsequent to that date do not require an adjustment to the financial statements. The effect of the event on the future period, however, may be of such importance that it should be disclosed in a footnote or elsewhere.