Researching Original FASB Standards Using the FASB website, locate the original

Question

Researching Original FASB Standards Using the FASB website, locate the original (superseded) standard FASB Statement No. 5, Accounting for Contingencies (as amended). In approximately one paragraph, describe when accrual of a loss contingency is required by this standard, and cite the FASB standard and paragraph number that provides this guidance. State also which disclosures must accompany loss contingency accruals. Finally, considering the background of this project described in Appendix B, was there uniform guidance for contingency accounting available prior to this standard? What committees or agencies, at that time, participated in establishing accounting guidance? Explain. 1.3

Explanation / Answer

1. Accrual for Loss contingency - When required ?

Company must make an accrual in the books by creating a charge on income in case of any contingent loss if both the below condition are met.

A. Probability of contingent loss becoming reality is High - There mught be some information available to company before the issueance of financial statments means there is a porbability of a liabiity arising out of contingency. If these events and information ensures that the contingent loss will be a reality in neaar future, a provision must be created in books.

B. Contingent loss can be measured resonably - With all the information available to company, the contingent loss should be measurable with reasonbale accuracy.

Satisfaction of these two condition makes it mandatory for company to create a charge on income by makeing an accrual for loss. This is as per FASB 5 Accounting for contingency para number 8.

2. Disclosures Required

Accrual made - The nature of accrual made on the satisfaction of the above two condition and amount of the same should be disclosed in financial statments.

Accrual not made - If both the conditions of paragraph 8 are not satified and accrual is not made, then a suitable discosure should be made stating the nature of liability and there is at least a resonable possibility that loss will occur.

Information available after balance sheet date - If information becomes available to company after the date of financial statement but before the financial statements are issued then a disclosur needs to be made in notes to financial statements that indicates the nature of loss or cliam that may arise (para 8(a)) and an estimate of the amount or a range of estimate may be disclosed.

FASB is a non-profit organization standard setting body whose primary purpose is to establish and improve generally accepted accountig practise in US. SEC recognized FASB as organisation responsible for setting accountimg standard for public companies. FASB replaced  American Institute of Certified Public Accountants' (AICPA) Accounting Principles Board (APB) on July 1, 1973. Financial accounting and reporting standards were established first by the Committee on Accounting Procedure (1936–1959) of the American Institute of Accountants and then by the Accounting Principles Board (1959–73), a part of the American Institute of Certified Public Accountants. Pronouncements of those predecessor bodies remain in force unless amended or superseded by the FASB

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.