As the chief accountant of DESA BHD, you need to provide the explanation of how you are going to account for these events and the required disclosure in the financial statement in accordance to FRS 137. DESA BHD is listed company engaged in providing brokerage services in Kuala Lumpur and Bangkok. The External Auditor has raised several issues that need to be addressed by DESA BHD.

Q: During the year, one of its clients has sued DESA BHD claiming that one of the employees has not acted according to the directions which resulted in a loss of RM500,000. The phone call records provide evidence that the employee has not acted according to the directions. DESA BHD has started negotiations for out of court settlement but the client is insisting for full claim. The company has not provided for the litigation cost at the year end.