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Discuss contingencies and how they are reported on financial

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Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

For each of the intended uses of the derivatives listed below, explain the accounting in fair value:
o Derivative designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability to or firm commitment
o Derivative designated as a hedge of the exposure to variable cash flows of a forecasted transaction
o Derivative designated as a hedge of the foreign currency exposure of a net investment in a foreign operation
o Derivative not designated as a hedge

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Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

-- Accounting for loss contingencies is governed by SFAS No. 5. Loss contingencies are classified according to likelihood as remote, reasonably possible, and probable. Loss contingencies are considered remote when there is only a slight chance of the loss contingency happening. If the contingency is reasonably possible, it indicates that there is a more than remote chance, but less then probable chance of the contingency happening. If the loss contingency is determined to be probable, it indicates that the events leading to the loss contingency are likely to occur. The loss contingency can only be charged against income if the following two conditions are met:

(1) The amount of the loss contingency can be reasonably estimated, and
(2) The information that is available prior to issuing the financial statements indicates that "it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements" (SFAS No. ...

Solution Summary

Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income?

For each of the intended uses of the derivatives listed below, explain the accounting in fair value:
o Derivative designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability to or firm commitment
o Derivative designated as a hedge of the exposure to variable cash flows of a forecasted transaction
o Derivative designated as a hedge of the foreign currency exposure of a net investment in a foreign operation
o Derivative not designated as a hedge

$2.19
Similar Posting

Contingencies: A discussion about reporting by an auditor in the financial statements.

An audit client is being sued for $500,000 for discriminatory hiring practices.

Required:

Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry:

Required:

What should the auditor do in each case?

a) The lawyer stated that the client has a "merirorious defense."
b) The lawyer stated that there is only a remote chance that the client will lose. The client did not accrue any contingent loss or disclose this situation. c) The lawyer state the client will probably lose, and the amount of loss could be anywhere between $250,000 and $500,000, with no amount within that range being more likely than another. The client disclosed this situation but did not accrue a loss.
d) The lawyer state that there is a reasonable possibility that the client will lose. The client disclosed this situation but did not accrue a loss.
e) The lawyer stated that the client will probably losebetween $250,000 and $500,000, but most likely will lose $400,000. The client accrued a $250,000 contingent loss and disclosed the situation.

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