13. Liabilities

Question 1

A company refinances a short-term liability as a long-term liability after the balance sheet date but before financial statements are issued. How should should it report the liability under US GAAP?

Answer 1

As a long-term liability. If a company demonstrates the intent and ability to refinance a short-term liability as a long-term liability after the balance sheet date but before issuance of financial statements, it may classify the liability as long-term on financial statements under US GAAP.

Note that under IFRS, intent and ability is not sufficient. A company must have entered into a refinancing agreement as of the balance sheet date to reclassify short-term debt as long-term debt.

Question 2

Can a deferred tax liability be classified as a current liability?

Answer 2

No. All deferred tax assets and liabilities are classified as non-current.

Question 3

What are the three levels of loss contingencies and their respective disclosures/accruals?

Answer 3

1. Remote: don’t disclose, don’t accrue
2. Reasonably possible: do disclose, don’t accrue
3. Probable: do disclose, do accrue if estimable. If not estimable, just disclose.