Caplan Pharma, Inc., recently was sued by a competitor for possible infringement

Question

Caplan Pharma, Inc., recently was sued by a competitor for possible infringement of the competitor’s patent on a top-selling flu vaccine. The plaintiff is suing for damages of $15 million. Casper’s CFO has discussed the case with legal counsel, who believes it is possible Casper will not be able to successfully defend the lawsuit. The CFO knows the current US accounting guidelines require that contingencies (such as lawsuits) must be disclosed in the annual report when a loss is possible. However, she is unsure whether this rule must be applied in the preparation of interim financial statements. She also knows that disclosure is necessary only if the amount is material, but she is unsure whether materiality should be assessed in relation to results for the interim period or for the entire year.

REQUIRED: Using the FASB ASC Codification database, determine whether contingencies are required to be disclosed in interim reports, and, if so, how materiality is to be determined. Use proper Codification citations.

Explanation / Answer

Yes it required.

the interim financial information is condensed information, all of the following conditions are met: i. The condensed interim financial information purports to conform with an appropriate financial reporting framework, which includes appropriate form and content of interim financial statements; for example, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 270, Interim Reporting, and Article 10 of SEC Regulation S-X with respect to accounting principles generally accepted in the United States of America5 or International Accounting Standard 34, Interim Financial Reporting, with respect to IFRS issued by the IASB may be appropriate financial reporting frameworks for interim financial information. ii. The condensed interim financial information includes a note that the financial information does not represent complete financial statements and should be read in conjunction with the entity's latest annual audited financial statements. iii. The condensed interim financial information accompanies the entity's latest audited annual financial statements or such audited annual financial statements are made readily available by the entity. The financial statements are deemed to be readily available if a third party user can obtain the financial statements without any further action by the entity (for example, financial statements on an entity's website may be considered readily available, but being available upon request is not considered readily available).

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