Danle Corporation

Danle Corporation

Background of Danle Corporation

Danle Corporation is a public company that is engaged in the activities relevant to the development, design, assembling of passenger cars, manufacture of sport utility and recreational vehicles, mini vans and trucks. However, recently Danle is facing complains from the client. Two claims were filed regarding the recovery of the alleged exposure to asbestos. Employees of Danle were affected by asbestos and getting severely ill.

Discussion

In my opinion Danle did not do right thing by omitting the disclosure in his financial statements related to the class-action litigation for the year ended December 31, 2009. Danle Corporation shall disclose and reflect the loss in the financial details of the company.

Current Requirements

ASC 450-20 requires the following: For probable loss contingencies, entities should:

Record an accrual when the loss is probable and can be reasonably estimated. The best estimate of loss within a range should be accrued; however, if no estimate in the range is better than any other, the minimum amount should be accrued.

Disclose the nature of the accrued loss contingency.

For reasonably possible loss contingencies, entities should:

Disclose the nature of the loss contingency. Disclose, in some circumstances, the amount accrued if such disclosure is necessary for the financial statements to not be misleading.

Disclose the estimation of the potential losses or extent of losses or statements that such estimates can't be made.

Disclosure should also be made for reasonable potential losses in surplus of the amount accrued. For example, if it is probable the contingency will result in a $100 loss, but it is reasonably possible the loss could be $500, the entity should disclose the nature of the loss contingency and:

For example, accrue $100, disclosing the amount accrued if necessary for the financial statements to not be misleading.

It has been indicated that registrants should try to quantify ...