[haccp]

Me and my study group was discussing about this question.
On 12/31, client recorded $10M contingent loss on lawsuit. (recorded & disclosed)
Then, on January, lawyer concludes that it is “reasonable possible” that the lawsuit will create
$3M loss. The question is whether any adjustment or disclosure is required or not.

One thoughts that client anyway made a record of contingent loss in their FS so the FS needs to be revised to $3M and disclosed. Other one argues that it is “reasonable possible” so only disclosure of $3M is required without adjustment. Which one would be appropriate?
everyone agrees that the report is going to be unmodified with emphasis of matter.

[Anonymous]

Hi haccp, it would not be appropriate to accrue the loss unless it was probable (highest likelihood of loss). If it was reasonably possible to incur loss, all you would need to do is to make a disclosure in the footnotes of the financials.

[Author]

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