After it prepares its financial statements,a hospital has historically received malpractice claims for events occurring before the balance sheet date.How should the hospital handle these incurred but not reported (IBNR)claims its financial statements?

Question

Quizplus · Accepted Answer

The hospital should estimate, based on past experience, the amount of probable loss on IBNR claims and report this amount as an expense and a liability in the financial statements. This is in accordance with the matching principle, which requires expenses to be recognized in the same period as the related revenue or liability. Disclosing in the notes to the financial statements that the hospital historically receives IBNR claims is not sufficient as it does not provide information on the estimated amount of loss. Taking no action is also not appropriate as it would not accurately reflect the hospital's financial position and performance.

After It Prepares Its Financial Statements,a Hospital Has Historically Received