You work as an accountant at a large “not-for-profit- business oriented” hospita

Question

You work as an accountant at a large “not-for-profit- business oriented” hospital. You report directly to the Chief Accounting Officer. The hospital’s Chief Compliance Officer just informed the accounting team that a surgeon left behind an instrument in a patient’s body in the course of a surgery. The hospital’s legal counsel informed the accounting team that the hospital is certain to be sued. The Hospital’s Board of Directors is very concerned on how this event might affect the hospital’s financial statements. The Chief Accounting Officer has requested that you write a brief and concise memo (around 250 words) that will be presented to the board on how this incident could affect the financials.

You recall from your student days that contingencies are discussed in FASB Statement No. 5.

Explanation / Answer

As there is a contingent liability of being sued and the hospital has to pay money if it gets sued.

As per the Accounting Standard 4 for contingent liabilities, it will be shown at the bottom of the financial statements of the hospital.

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