Question

What type of disclosure or accounting do you believe is necessary for the following items?

a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future.

b) A company reports a material unusual and infrequent loss 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, counsel for the company has confirmed the client’s expectation of recovery.

Short answer

The type of disclosure should be made in conjunction with any change in accounting policy that has a material effect.

Step-by-step solution

Meaning of Disclosure of Principle

The Disclosure Principle refers to the disclosure of all relevant data, whether monetary or non-monetary, to creditors, investors and shareholders. Disclosures must be made by an organization's management.

Explaining the types of Disclosure in different items

(a) The extended likelihood that the company will endure an excessive strike does not require any disclosure within the financial statements. The prospect of a strike is an unavoidable risk for many businesses. This, in combination with the risks of war, subsidence, etc., falls under the category of general news.

(b) A note should depict an unusual and rare misfortune so that the monetary explanation gives the user little understanding of the nature of the item.

(b) Contingent assets that actually affect the financial position of a company should be disclosed when the surrounding circumstances show that, in all likelihood, a substantial resource will materialize. In most circumstances, a resource will not be recognized until a court settlement is reached.