AUD Question – Wiley – When to expense estimated litigation costs

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  • #2945469

    During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is “reasonably possible” that the company will be assessed damages. A damage amount can be estimated.

    The answer from Wiley is that you don’t accrue the expense and only need to document in the AFS — why?

    I would think because it is estimated, you could accrue for the liability:

    Legal Exp XXX
    Accrued Liability XXX

    Then you reverse/adjust once it is finalized?

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  • Author
  • #2945622

    Reasonably PROBABLE -> accrue the loss (if it can be estimated) and disclose
    Reasonably POSSIBLE -> don't accrue the loss, but do disclose (this is a lower likelihood than reasonably probable, where it's not more likely than not that the entity will have to pay)
    Highly unlikely, not reasonably possible, etc -> Don't accrue or disclose

    AUD - 94
    BEC - 90
    FAR - 95
    REG - NINJA in Training
    Are we there yet?

    Waiting impatiently on my last score.


    ahhhhhhhhhhhhhhhhhhh okay – thanks!

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