-25- that: “Under Generally Accepted Accounting Principles [GAAP], true contingent liabilities are merely disclosed in the footnotes to the financial statements as petitioner Hepburn did in this case, rather than accrued in the statements as a liability. See FASB Statement No. 5”. FASB establishes and improves standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial statements. Kay & Searfoss, Handbook of Accounting and Auditing 46-8 (2d ed. 1989). Respondent directs our attention to FASB Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FASB Statement No. 5). By FASB Statement No. 5, FASB establishes standards of financial accounting and reporting for “loss contingencies”, which term is defined to mean, in general, a situation of possible loss that will be resolved in the future, see FASB Statement No. 5, par. 1. The likelihood of a loss can range from “probable” to “remote”. Id. at par. 3. The estimated loss associated with a liability must be accrued by a charge to income (which would result in a balance sheet liability) if both (1) information indicates that it is probable that the liability has been incurred and (2) the amount of the loss can be reasonably estimated. Id. at par. 8.13 13 Guarantees are specifically included in the examples of loss contingencies contained in FASB Statement No. 5. FASB Statement No. 5., par. 4.h. (“Guarantees of indebtedness of others”). The current practice under Generally Accepted Accounting Principles (continued...)Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Next
Last modified: May 25, 2011