107 views2 pages

Document Summary

The major issue falls in the presentation part of the conceptual framework here. Alternative 1: record it and make a provision. Since, lsl is investigating the claim of overstated net income and, to date, has not found anything that indicates a material misstatement; therefore, it is probable that the company might lose the case. Based on these principles, a provision can be created to account for the lawsuit expense because the loss is probable and the company will be obliged to pay the amount. As instructed by ias 37-23, this will show up as a liability on the balance sheet. This treatment will lead to increased liability and hence decreased liquidity. As we are still investigating the claim of misstatement of net income and are unsure whether evidence will be found, based on the guidelines given in ias 37-10, charges from the lawsuit can be taken as contingent liability.