Assume that there is a fire at a company's manufacturing plant that not only results in a total loss of the plant but also damages several surrounding businesses. The company anticipates material exposure from the adjacent businesses regarding both building loss and lost income claims. However, the company also expects this loss to be recovered through insurance. The company does not want to reflect this in because it reasonably expects there to be no net financial impact. However, they are aware that the SEC Staff Accounting Bulletin 92 (SAB 92) generally prohibits offsetting insurance coverage before disclosing or accruing a loss contingency. 

Questions:

As chief financial officer (CFO), discuss the guidance and advice you would provide the chief executive officer (CEO) relative to the disclosures of a potential contingent loss.  

• Do the provisions of SAB 92 allow the company to reflect the true impact of the loss?
• What changes would you recommend to SAB 92?
• Please provide a rationale for your responses.

Answer rating: 100% (QA)

As the CFO I would advise the CEO regarding the disclosures of a potential contingent loss and the provisions of SAB 92 as follows 1 Guidance on Discl... View the full answer