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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...)
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