ASH ACC 306 Week 1 DQ 2 Judgment Case 13-9
Check this A+ tutorial guideline at
http://www.assignmentcloud.com/acc-
306-ash/acc-306-week-1-dq-2-judgment-
case-13-9
Judgment Case 13–9 - Valleck Corporation - Loss contingency and full disclosure ● LO5
LO6
In the March 2012 meeting of Valleck Corporation’s board of directors, a question arose as
to the way a possible obligation should be disclosed in the forthcoming financial statements
for the year ended December 31. A veteran board member brought to the meeting a draft
of a disclosure note that had been prepared by the controller’s office for inclusion in the
annual report. Here is the note:
On May 9, 2011, the United States Environmental Protection Agency (EPA) issued a Notice
of Violation (NOV) to Valleck alleging violations of the Clean Air Act. Subsequently, in
June 2011, the EPA commenced a civil action with respect to the foregoing violation
seeking civil penalties of approximately $853,000. The EPA alleges that Valleck exceeded
applicable volatile organic substance emission limits. The Company estimates that the cost
to achieve compliance will be $190,000; in addition the Company expects to settle the EPA
lawsuit for a civil penalty of $205,000 which will be paid in 2014.
“ Where did we get the $205,000 figure? ” he asked. On being informed that this is the
amount negotiated last month by company attorneys with the EPA, the director inquires,
“Aren’t we supposed to report a liability for that in addition to the note? ”
Required:
Explain whether Valleck should report a liability in addition to the note. Why or why not?
For full disclosure, should anything be added to the disclosure note itself?