Caplan Pharma, Inc., was recently sued by a competitor for possible patent infringement on a top-selling flu vaccine. The plaintiff is suing for about $15 million in damages. Caplan's CFO discussed the case with an attorney, who believes Caplan may not be able to successfully defend the lawsuit. The CFO knows that current US accounting standards require that contingencies (such as lawsuits) must be disclosed in the annual report when a loss is possible. However, he is not sure whether this standard should be applied in the preparation of interim financial statements. He also knows that disclosure is necessary only if the amount is material, but is unsure whether materiality should be assessed in relation to interim or full-year results.

Look to current U.S. accounting standards (FASB ASC Topic 270, Interim Reporting,) to determine whether contingencies should be disclosed in interim reports and, if so, how materiality should be determined.