Article Summary
The article has various aspects of information that may have not been fully expounded in the book. The article talks of, “’Contingent Liabilities’ May Not Be So Contingent” and that, there should not be any disclosure required if claims have not yet been asserted. The article further stares that, “unless it is considered probable that a claim will be asserted and it is reasonably possible that the outcome will be unfavorable.”
‘Looking Behind the Balance Sheet’ is what else is covered in the article that its idea is not found in the book. This phrase refers for the better understanding of the environment operated by the prospective borrowers. It extends the understanding to the types of investment maintained by them together with the nature of law suit they exhibit. It further goes to depths of investigating the available steps that may be taken by the potential borrowers in preventing lawsuits. It lastly talks of, analysis of the possible risks that may arise in the event of borrower’s asset and management practices. It is the very important (as the article depicts) that, in addition to valuing of the stated contingent liabilities outcome, must look into the stated asset values and then can they be able determine their true extent and nature and
There were some similarities that were pinpointed in the article to be explained in the book. The article defines classes of contingencies obtained from SFAS No. 5. They are; probable contingency which, depicts a like to occur situation, reasonably possible which is more than the remote type but is less likely to occur, and remote which depicts a slight chance of occurrence. SFAS No. 5 also states, loss contingency should be charged and considered as a loss done against the income of the borrower only in the event, it is noted that a liability is incurred and if the intensity of loss can be estimated reasonably. In the even both or one of the conditions are not achieved then, contingent loss should not be charged against income. This is entirely covered in the book hence backing up the ideology behind it.
The Book chapter has it that, in relation to uncertainty concerning the timing of cash flows and amounts, it should be taken into account that, the future cash flows are usually contractual and certain, and that, the amounts and cash flows timing are indeed less certain in other situations, and may warrant obligations. As per the article, the borrower’s financial sheets are to be fully analysed to identify the hidden contingencies.
There was a notable difference that contradicts the concept present in the book. The book states, in the event of loss of contingency in an uncertain situation that involves potential loss that is dependent on the occurrence of some future event such as, accruing of the contingency, the following factors will have to be considered.“ The likelihood that the confirming event will occur” and “what can be determined about the amount of loss.” The article had a slightly different opinion in regards to the providence of the book. It depicts that, it is highly advised and necessary to discount the overlying contingent liability through the idea that, the probability of the contingency occurring and the liability becoming real should be considered (Spiceland et al 765).
Works Cited
Seigel, B. S., & Coombs, C. C. "Contingent liabilities in a meltdown economy: A new headache for commercial lenders." The RMA Journal, 91(6) (2009): 60-63.
Spiceland, David, Sepe, James, and Nelson, Mark. Intermediate Accounting,. 7th Edition. New York: McGraw Hill, 2013.
