Case: Settlement

Discussion1 Is dissipated Eddie required to come a liability as of March 31, 2011, financial statements related to the ongoing government investigation? If so, how much(prenominal)? Yes. Fast Eddie is required to accrue a liability of $3. 7 million. incidental Events argon Events or transactions that occur after the equalizer main bed sheet date merely in the beginning financial statements ar issued or are available to be issued. There are two types of subsequent events a.The start type consists of events or transactions that provide additional evidence almost(predicate) conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events). b. The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (that is, nonrecognized subsequent events).According to ASC 855- 10-25-1, an entity shall recognize in the financial statements the make of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.An illustration of recognized subsequent events is that if the events that gave rise to litigation had taken place originally the balance sheet date and that litigation is settled after the balance sheet date but before the financial statements are issued or are available to be issued, for an core different from the liability save in the accounts, then the settlement amount should be considered in estimating the amount of liability recognized in the financial statements at the balance sheet date. The investigation was held in 2010 before the end of fiscal year on Mar 31, 2011.The $3. 7 million of settlement was offered in April 2011, before CPAs-R-Us realised its procedures and issued the audit report for the year ended March 31, 2011. The government did not accept offers to settle before finalizing its investigation, as a result, Fast Eddie should accrue a liability as of Mar 31, 2011. According to ASC 450-20-25-2, the required accrual liability would be $3. 7 million. An estimated loss from a loss contingence shall be accrued by a charge to income if both of the by-line conditions are met a.Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. bodyguard of the financial statements means the end of the most recent accounting breaker point for which financial statements are being presented. It is implicit in this condition that it essential be probable that one or more future events provide occur confirming the fact of the loss. b. The amount of loss can be reasonabl y estimated. 50-20-50-10 talks about Litigation, Claims, and Assessments. As a result, the settlement is a recognized subsequent event. According to EITF Topic No. D-77, Accounting for statutory Costs Expected to Be Incurred in Connection With a redness Contingency (ASC 450-20-S99), The SEC Observer noted that the SEC staff would remain a registrants accounting policy to be applied consistently and that APB intuitive feeling No. 22, Disclosure of Accounting Policies, requires disclosure of material accounting policies and the methods of applying those policies. Discussion2If Fast Eddie withdraws the settlement offer before it is accepted by the government and before the issuance of Fast Eddies financial statements, would that change your answer to the above question? According to 450-20-55-36, Fast Eddie should provide an illustrative disclosure in accordance with ASC 450-20-50. In this case, accrual would be inappropriate, but disclosure would be required if an unfavorable out come is determined to be reasonably mathematical but not probable (450-20-55-13). Since Fat Eddie believes the company is not obligated.