ACCOUNTING ISSUES MEMO Case 7.2 Accrual for a Lawsuit, Writing an Issues Memo

Your company has just been named as defendant in a lawsuit related to a leak of chemicals, from one of your company’s plants onto private property. The plaintiff is suing for $5 million in damages; your company’s attorneys believe the ultimate amount of loss could range between $1 million and $3 million, with no amount in the range more likely than other amounts in the range. The lawsuit is expected to be resolved in the middle of next year. Citing from authoritative literature, prepare a brief accounting issues memo to the files addressing

(1)    whether a loss should be accrued, and for what amount, and (2) what disclosures should be made in the company’s financial statements.

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