What is the difference between Type I and Type II?

Type I provides evidence of conditions at balance-sheet date — adjust. Type II arises after — disclose if material. Judgment and dating drive the call.

Through what date do you evaluate?

Through report issuance (or available-to-issue) date, documented with procedures to that date, not just year-end.

What procedures are required?

Minutes to issuance, subsequent cash and disbursements, debt and equity changes, litigation updates, management representation dated to report.

What do auditors ask for?

Subsequent trial balance, bank activity, major contracts, settlement docs, and representation letter aligned to report date.

Subsequent Events in 2026: ASC 855 Type I vs Type II With Disclosure Playbook

Decision Tree

Condition at BS date? → Yes → Adjust (e.g., AR collectability info, settlement confirming estimate). Arose after? → Disclose if material (e.g., fire, acquisition, financing).

Pair with Year-End Close, Going Concern, PBC, and Related Party.

Date Discipline

Lock subsequent review to report date, not fieldwork end.
Re-perform cash tie to issuance — see Bank Rec.
Update debt/covenant memo — see Debt.
Representation letter dated to report — retain per Audit Procedures.

Link to Q1 Prep and SOX 404.

Disclosure Draft

Nature, date, amount or range, and action. Coordinate with Audit Committee before issuance.

Type I vs Type II: Worked Cases

Event	Type	Treatment
Major customer files bankruptcy Feb 10; year-end Dec 31; AR was already doubtful with partial reserve	Type I	Adjust: bankruptcy confirms the year-end collectability estimate — true-up the reserve, don’t just disclose
Warehouse fire destroys inventory Jan 22, after year-end	Type II	Disclose: condition (fire) arose after BS date; no adjustment, describe loss range if estimable
Lawsuit settled Feb 15 for $400k where year-end accrual was $250k on same claim	Type I	Adjust to $400k — settlement evidences the year-end obligation
Series B closes Feb 28 at 3× prior valuation	Type II	Disclose: material capital event; no adjustment to year-end equity
Fraud discovered in March in year-end revenue	Type I	Adjust and expand scope: restatement risk, control failure — see Fraud Prevention

The dating question decides everything: did the underlying condition exist at the balance-sheet date, or did it arise after? Document the timeline explicitly in the memo — “existed at” vs “arose after” with evidence dates — because auditors will re-perform this judgment.

Procedures Calendar (Through Report Date)

Procedure	When	Evidence
Minutes (board + committees) to issuance	Weekly sweep	Signed minutes or drafts with review note
Subsequent cash receipts/disbursements	To report date	Bank activity tie — see Bank Rec
Debt/equity changes, waivers, covenants	To report date	Agreements, waiver letters — see Debt
Litigation updates from counsel	Inquiry letter + update calls	Counsel responses
Management representation letter	Dated to report date	Signed, aligned to report

The classic failure: fieldwork ends March 10, report issues March 28, and nothing in the file covers March 10–28. A covenant breach or lost customer in that window with no procedure is a review note at best and a reporting failure at worst. Schedule the subsequent sweep as a calendar event on the report date itself — see Q1 Prep.

Disclosure Drafting That Satisfies Review

Each disclosed event gets four lines: nature (what happened), date (when), amount or range (or “not yet determinable — why”), and action (what management is doing). Coordinate wording with counsel and the audit committee before issuance — see Audit Committee. Vague boilerplate (“the Company is monitoring events”) with a material unquantified acquisition draws comments; a dated, quantified note with the financing terms does not.