Your company has just been named as defendant in a lawsuit related to a leak of

Question

Your company has just been named as defendant in a lawsuit related to a leak of chemicals, from one of your company's plants onto private property. The plaintiff is suing for $5 million in damages; your company's attorneys believe the ultimate amount of loss could range between $1 million and $3 million, with no amount in the range more likely than other amounts in the range. The lawsuit is expected to be resolved in the middle of next year. Cite from the FASB Codification an research memo to address whether a loss should be accrued, and for what amount, and what disclosures should be made in the company's financial statements.

Explanation / Answer

Under US GAAP if no amount in the range more likely than other amounts in the range and entity should record the minimum amount in the range as the accued liability as per ASC-450-20-30-1.

So in this case the minimum amount in the range is $1 million and that should be accrued as contingent laibility. The same basis of considering the contingent loss should be disclosed in the financials with the details of the range , the probable date of resolving the case and details of case.

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