What
type of disclosure or accounting is necessary for each of the following items?
(a)
Because of a general increase in the number of labour disputes and strikes,
both within and outside the industry, there is more chance that a company will
suffer a costly strike in the near future.
(b)
A company reports a discontinued operation (net of tax) correctly on the income
statement. No other mention is made of this item in the annual report.
(c)
A company expects to recover a substantial amount in connection with a pending
refund claim for a prior year's taxes.
Although
the claim is being contested, the company's lawyers have confirmed that they
expect their client to recover the taxes.
(a) The increased likelihood that
the company will suffer a costly strike requires no disclosure in the financial
statements. The possibility of a strike is an inherent risk of many businesses.
It, along with the risks of war, recession, etc., is in the category of general
news and reporting on such a general contingency is beyond the scope of
financial reporting.
(b) A note should provide a
description of the discontinued operation in order that the financial statement
user has some understanding of the nature of this item and its effect on
financial performance and position.
(c) Contingent assets which may
materially affect a company’s financial position must be disclosed when the
surrounding circumstances indicate that, in all likelihood, a valid asset will
materialize. In most situations, an asset would not be recognized until the
claim settlement had occurred.
