Welcome and congratulations, you've made it to

the halfway point of our course in intermediate accounting.

In this module, we are going to do a review of the topics that we've discussed so far,

look back over and try and get the big picture of what you've accomplished today.

So let's start with lesson one.This is a review of

the current liabilities and contingencies that we

talked about at the very beginning of the course.

So again, current liabilities are used to

designate obligation whose liquidation is reasonably

expected to require the use of existing resources classified as current assets.

So what does that mean?

We are going to be looking to clear

these liabilities within the course of

one year or an operating cycle whichever is longer.

And current liabilities will include things like

accounts payable and collections receivable.

You're going to have other payments expected to be made within

the year and that will be your short term financing facilities,

your accrued salary and benefits,

any payments for the beneficiaries of unfunded plans and retirement plans,

the current portion of long term debt, and also,

all debt that's callable anytime even if it appears to be

long term debt or debt callable and violation without a cure or a waiver,

or debt with a subject of acceleration clause.

These are often very important audit issues,

something you should be aware of.

So what is a contingency?

Contingencies are about whether liability has been incurred or an asset exists.

It's not whether the amount is estimated or not.

We have a lot of estimated amounts in accounting.

This is something has happened,

the asset exists and we have to decide whether

to recognize it or not and how to measure it.

And for recognition purposes,

you'll recall, there's a probability threshold.

You will charge it to income and recognize liability.

If both of these conditions are met,

it's probable an asset has been impaired or a liability has been

incurred and the amount of loss can be reasonably estimated.

The range of loss,

if there's a range of items in there and

no item appears to be more likely than any other amount,

you're going to take the amount that's at the lowest part of

the range although you will disclose that additional losses could be accrued.

Speaking of disclosure, the disclosure of the contingency is made if there's

at least a reasonable possibility that a loss or an additional loss,

remember if we take it at the lower end of the range,

it's possible that you have an additional loss,

may have been incurred and either the following conditions exist.

So, if there is no loss contingency accrued,

then you're going to disclose the entire amount.

If you did accrue a liability at the low end of the range,

you'll disclose the additional amount.

Gain contingencies are not at the same level for the recognition threshold.

There's an asymmetry here,

because you don't do that typically unless it's actually reasonably assured,

unless you've almost kept the money in the bank.

So it's asymmetrical, that's a form of conservatism.

This is an example of legacy GAAP.

More modern GAAP typically,

that's based on fair values,

doesn't have this kind of asymmetry,

but contingencies still does.

So that's a wrap up of current liabilities and contingencies. Let's move on.

Review: Current Liabilities and Contingencies

Accounting Analysis II: Measurement and Disclosure of Liabilities

Meet the Instructors