Danle Corporation – Case 10-5
Discuss whether you believe that the conclusion reached by Danle to omit disclosure regarding to the class-action litigation was appropriate for the year ended December 31, 2009.
In our opinion, it was not appropriate for Danle Corporation to omit disclosure relating to the class action lawsuit for the year ended December 31, 2009.
First, it must be noted that ASC 450-20-25-2 indicates the following:
25-2 An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following 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
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The counsel used the specific phrasing “potentially, but not probably”, which logically could be interpreted to fall into the “Reasonably possible” category as it does not seem remote. The reasonably possible criterion indicates that the chance of the future event or events occurring is more than remote but less than probable. If we are to interpret this case as reasonably possible but not probable or reasonably estimable, we can say that the losses in question meet the ASC 450-20-50-3 criteria, thus requiring disclosure. Also, given that the fallout from this litigation could have a potentially significant detrimental impact on investors and other stakeholders, it is necessary for disclosure to be made as it could considerably affect future net cash flows.
If Danle’s Form 10-Q for the quarter ended March 31, 2010, were to be reviewed by the SEC’s Division of Corporation Finance, what comments may Danle expect to receive regarding its disclosure in that period? Discuss the basis for the comments you have identified.
The SEC’s Division of Corporate Finance will delve into the materiality of the litigation and what was the
reason for omission of the same from the prior year’s 10-K, when disclosure should have been necessary as well. There was no 8-K filed about the matter also which is odd given that a class action lawsuit of this magnitude should be considered a significant
The company should report the change in the contingency accrual as a 2009 event due change in estimate. ASC 250-10-45-17 specifies that “a change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts reported in financial statements of prior periods.” Additionally, ASC 450-20-25-7 indicates that “all estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments”.
As ASC 450-20-25-2 states, an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
1. According to the case, it shows that management of M determined that a loss would be “probable” and the estimate range would be $15 million to $20 million. However, they determined $17 million would be the “most likely” amount of loss.
As per ASC 450-20-25-2, entities should accrue an estimated loss from a loss contingency by a charge to expense and a liability recorded only if both of the following conditions are met:
Access the "Litigation" section of the SEC's website at www.sec.gov/litigation.shtml. Click on "Accounting and Auditing Enforcement Releases." Click on "AAER-3234" filed January 20, 2011. Read the release and the related SEC Complaint. Summarize the release and complaint in 2-3 pages (12-point, double spaced).
2 of the 25 warehouses containing the asbestos reside in states that do not have
The legal system is an essential element in the successful operation of this country. It is a system that is utilized every day, by every type of person, from the average blue-collar worker to the average Wall Street broker. There is a multitude of ways that the legal system is put to use. One such way is the class action lawsuit. A Civil Action, by Jonathan Harr, uses the account of a single case, Anne Anderson, et al., v. W.R. Grace & Co., et al, to illustrate the power and importance of class action lawsuits in the civil justice system.
Both parties consulted their attorneys whose guidance instructed them that they did not have to disclose the information. The motivating factor in both decisions was to protect the livelihood of their companies. The facts of the information that had been revealed to each company had not been proven.
Making the company profitable at any cost and means is Reed’s goal, ethical or not. Fuller has explained the regulations and laws to the accounting department and to Reed, and Reed seems to not care about cost to the company, just profitability. Share prices will also remain high because of this decision to report in 2010. This would only benefit managers and personnel that have stock options, keeping them interested in the company and their investments only.
3. Conduct an analysis of Williams’ sources and uses of funds during the first half of 2002. How do you expect these numbers to evolve over the second half of 2002? What is the problem facing Williams? How did it get into this situation? How has it tried to address the problem it is facing?
On April 1, 2011, the SEC suspended trading in CHJI because questions had arisen regarding the accuracy and completeness of information contained in CHJI’s public filings concerning, among other things, the company’s financial statements for 2009 and 2010. CHJI also failed to disclose that it filed its most recent Form 10-Q without the
1. Are the financial statements in Exhibit 3.7 consistent with V. Dourtan assumptions in Exhibit 3.1?
Our firm consisted of experienced entities that looked over topics such as legal matters, statistics that provided all the necessary knowledge in analyzing the facts and issues of the case. Our findings include future recommendations and strategic considerations that will assist in precluding a similar situation from arising.
* Comments relating to the adequacy of disclosures, the actual descriptions of rate reconciliation items, deferred tax assets and liabilities, uncertain tax positions, timing of reversals, or expiration of net operating losses in various jurisdictions.