The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

Question

Quizplus · Accepted Answer

This is known as the "Incurred But Not Reported" (IBNR) concept, which states that a liability should be recognized in the financial statements if the cause for litigation occurred on or before the date of the financial statements, even if the company has not yet been notified or assessed damages.

The Cause for Litigation Must Have Occurred on or Before