Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 21 (4 points) Under GAAP, contingent liabilities have to be accrued on a company's balance sheet if they are probable and can be
Question 21 (4 points) Under GAAP, contingent liabilities have to be accrued on a company's balance sheet if they are "probable and "can be reasonably estimated." During the course of performing a company's annual audit, you discovered facts that make it highly likely that a pending lawsuit against the company will be successful. You estimate that the company will lose $50 million. Thus, the contingent liability, is probable and can be reasonably estimated. The client is attempting to settle this case for a much smaller amount. Your client is concerned that accruing the expense on the financial statements would convey confidential strategic thinking about the liability. Do you have to accrue the contingent legal expense and liability and potentially convey this confidential information?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started