How to Report the Impacts of a Disaster on Your Financial Statements

Business owners have learned a lot during this year of the COVID-19 pandemic. One unexpected lesson is how to report the impact of a disaster on your company’s financial statements. Under U.S. Generally Accepted Accounting Principles (GAAP), the impact of events such as year’s crisis are referred to as “subsequent events,” and there are two types:

Recognized subsequent events

These events provide additional evidence about conditions, such as bankruptcy or pending litigation, that existed at the balance sheet date. The effects of these events generally need to be recorded directly in the financial statements.

Non-recognized subsequent events

These focus on evidence about the conditions, such as a natural disaster, that didn’t exist at the balance sheet date. Rather, they arose after that date but before the financial statements were issued (or available to be issued). Such events should be disclosed in the footnotes to prevent the financial statements from being misleading. Disclosures should include the nature of the event and an estimate of its financial effect (or disclosure that such an estimate can’t be made).

So, for example, the World Health Organization didn’t declare the COVID-19 outbreak a public health emergency until January 30, 2020. However, events that caused the outbreak had occurred before the end of 2019. So, the risk was present in China on December 31, 2019. Accordingly, calendar-year entities may have needed to recognize the effects in their financial statements for 2019 and, if applicable, the first quarter of 2020. Like many things COVID-19 related, this can get confusing, so contact us for help with your financial statements.

Scroll to Top