A question often arises as to how a reporting entity that is a subsidiary of another entity, and that is not itself an SEC filer or conduit bond issuer, should determine the date to be used when evaluating subsequent events in its standalone financial statements. That is, should the reporting entity utilize (1) the issuance date of the parent company consolidated financial statements, (2) the date the standalone financial statements are issued, or (3) the date the standalone financial statements are available for issuance?
Generally, our view is that when the parent company has issued financial statements or the financial statements are available to be issued, it is acceptable for the subsidiary reporting entity to utilize the issuance date of the parent company consolidated financial statements in determining the date through which to evaluate subsequent events for adjustment to the financial statements.
Example FSP 28-2 illustrates our view on recording a recognized subsequent event that arises for a subsidiary after its parent company’s financial statements are issued.
EXAMPLE FSP 28-2
Impact of subsequent events on subsidiary financial statements
Parent Co consolidates a non-SEC filer subsidiary, Sub Co, into its consolidated audited financial statements filed with the SEC. The consolidated Parent Co’s calendar year-end financial statements were issued on March 10, 20X8.
Following the issuance of the Parent Co’s financial statements, Sub Co was required to issue audited Sub Co financial statements (Sub Co financial statements had not been previously prepared). On May 1, 20X8, litigation brought against Sub Co was settled for a material amount in excess of the liability recorded in the parent company consolidated financial statements. The calendar year-end financial statements of Sub Co were available to be issued on May 15, 20X8.
How should this subsequent event impact the financial statements of the parent and the subsidiary?
Parent Co’s financial statements are not affected as the subsequent event occurred after Parent Co’s financial statements were issued on March 10, 20X8.
We believe an acceptable view is to consider Sub Co’s financial statements as issued when the parent company statements were issued. Following that view, Sub Co should consider the issuance of its financial statements to constitute a reissuance and, therefore, evaluate subsequent events for disclosure only. Sub Co would consider disclosing the settlement of the litigation in its financial statements as a nonrecognized subsequent event.