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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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