Chapter 17 - Solution Manual

50 6 disclosure is not required of a loss contingency

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50-6 Disclosure is not required of a loss contingency involving an unasserted claim or assessment if there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless both of the following conditions are met: a. It is considered probable that a claim will be asserted. b. There is a reasonable possibility that the outcome will be unfavorable. 50-7 Disclosure of noninsured or underinsured risks is not required by this Subtopic. However, disclosure in appropriate circumstances is not discouraged. 50-8 No disclosure about general or unspecified business risks is required by this Subtopic, however, Topic 275 requires disclosure of certain business risks. Part a. Since the accident occurred before the end of the year, as long as the expected loss can be reasonably estimated it should be accrued and reported in the December 31 financial statements. Contingencies and subsequent events are discussed in FASB ASC 450-20-50-9 as follows: Losses Arising After the Date of the Financial Statements 50-9 Disclosure of a loss, or a loss contingency, arising after the date of an entity's financial statements but before those financial statements are issued, as described in paragraphs 450-20-25- 6 through 25-7, may be necessary to keep the financial statements from being misleading if an accrual is not required. If disclosure is deemed necessary, the financial statements shall include both of the following: a. The nature of the loss or loss contingency b. An estimate of the amount or range of loss or possible loss or a statement that such an estimate cannot be made. 50-10 Occasionally, in the case of a loss arising after the date of the financial statements if the amount of asset impairment or liability incurrence can be reasonably estimated, disclosure may
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373 best be made by supplementing the historical financial statements with pro forma financial data giving effect to the loss as if it had occurred at the date of the financial statements. It may be desirable to present pro forma statements, usually a balance sheet only, in columnar form on the face of the historical financial statements. Part b Given the above criteria, the accident generally would not be accrued and reported in the financial statements because it did not occur until after December 31 (post balance sheet). FASB ASC 17-2 Accounting Policies a. The issue of accounting policy disclosure is contained in section 235-10. It is accessed through the cross reference function and APB Opinion No 22. Following is that discussion: 235-10-05 Overview and Background 05-1The Notes to Financial Statements Topic addresses the content and usefulness of disclosure by an entity of the accounting policies judged by management to be most appropriate to fairly present the entity's financial statements.
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