Reference no: EM131436285
Discussion Problem- Contingent Liabilities
Overview - Contingent losses arising from litigation can be especially difficult to know how to report in the financial statements. Companies don't want to admit to the loss as it might hurt their case in court, but they can't mislead the users of their financial statements either by ignoring what could be a significant financial impact.
Instructions - You are the Chief Financial Officer of a firm that is being sued for damages it caused. It is the end of your fiscal year, and you are trying to determine the appropriate treatment of this matter. Your boss, the Chief Executive Officer acknowledges (privately) that your firm is responsible for the damages and that the judgement will be made against your firm. Your legal counsel estimates that the penalty levied by the court will be in the range of $2 million to $6 million, with a most likely amount of $4 million. The CEO's posture on the matter is that because of the wide variance in the range of possible outcomes (i.e. penalties levied) that the best thing to do is to simply wait until the case is settled (next year), and record at that time the actual damages assessed by the court.
Answer the following questions:
1. What are some possible reasons that the CEO may hold his viewpoint?
2. What should be your response to the CEO?
3. Do you think it is necessary to make an accrual for an estimated amount of the assessment or settlement? If so, what amount do you think is appropriate? Explain.
4. Would your answer to any of the above questions be different if the financials are being prepared under IFRS instead of U.S. GAAP?
|
Suggest variability in fuselage thickness is less for carbon
: Manufacturing and Product Development - Is there any evidence to suggest that the variability in fuselage thickness is less for carbon fiber fuselages?
|
|
Explain in detail why the deduction was denied
: Charlie and Joan Smith filed their 2013 tax return and claimed $25,000 charitable deduction on their tax return. In a report of two pages, explain in detail why the deduction was denied.
|
|
What is the radius of curvature of the mirror
: (1) A concave mirror is constructed so that a man at a distance of 26 cm from the mirror sees his image magnified 2.0 times. (a) What is the radius of curvature of the mirror?
|
|
Find the focal length of the mirror
: A candle with a flame 1.6 cm tall is placed 4.9 cm from the front of a concave mirror. A virtual image is formed 10 cm behind the mirror.
|
|
What should be your response to the ceo
: What are some possible reasons that the CEO may hold his viewpoint? What should be your response to the CEO? Do you think it is necessary to make an accrual for an estimated amount of the assessment or settlement?
|
|
Briefly explain the role of investor bankers
: Which explains the role of Financial Institutions in 21st Century. Briefly explain the role of Investor Bankers and the concept of Collateralized Debt Obligations/Sub prime mortgages.
|
|
Suggest population mean pier length in california is greater
: Assume the underlying populations are normal, with equal variances. Is there any evidence to suggest that the population mean pier length in California is greater than the population mean pier length in Florida? Use a = 0.01.
|
|
Derive the profile of oxygen mole fraction
: Let Do be the diffusivity of O2 in the gas mixture. Derive the profile of oxygen mole fraction (x) in the direction normal to the surface. Assume, as one boundary condition, that the oxygen mole fraction is constant (x2) outside of a thin layer of..
|
|
How did town clerk commit the fraud
: Different people make the ledger entries in the Utility Department Office. Different people make the bank deposits. How did she commit the fraud?
|