Macromedia, Inc., is the original maker of shockwave and flash technologies. One of its annual reports indicated

Question:

Macromedia, Inc., is the original maker of shockwave and flash technologies. One of its annual reports indicated that a lawsuit had been filed against the company and five of its former officers for securities fraud in connection with allegedly making false or misleading statements about its financial results. The lawsuit was settled out of court, as described in the following note:
Legal
The settlement amount was $48.0 million, of which approximately $19.5 million was paid by insurance. As a result, the Company recorded a $28.5 million charge as a component of other income (expense) in its consolidated statements of operations.
Required:
Explain why Macromedia didn't record a contingent liability under when the lawsuit was first filed.
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...