Which of the following is the best example of a Type I subsequent event?
A)A related-party transaction occurs during the course of the audit.
B)The company defaults on its line-of-credit with the bank subsequent to year end but previous to the release of the audit opinion.
C)Litigation that was accrued as a liability in the year under audit is settled subsequent to year-end for an amount in excess of estimates.
D)The company initiates an initial public offering subsequent to year-end.

Question

Quizplus · Accepted Answer

A Type I subsequent event is an event that provides additional evidence about conditions that existed at the balance sheet date. In this example, the settlement of litigation provides new information about a liability that was accrued at year-end, suggesting that the estimate of the liability at year-end was incorrect. This event would require adjustment to the financial statements, and disclosure in the notes to the financial statements. None of the other choices relate to conditions that existed at the balance sheet date.

Which of the Following Is the Best Example of a Type