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Lawsuit Exposes Gaps in Loss Contingency Disclosures

Alix Stuart | December 18, 2012

When a Judge in Mexico ruled against Yahoo with a massive $2.7 billion judgment, the Internet company may have lost more than the case; it also lost some credibility on its financial reporting.

Yahoo announced in late November that it was facing the massive penalty as a result of lawsuit in Mexico it lost against a yellow pages listing service company. To be sure, companies win and lose lawsuits all the time, and Yahoo is unlikely to shell out anywhere near that figure, as it plans to “vigorously defend itself” during the appeals process. The real problem, however, was the fact that the case exposed holes in Yahoo's loss contingency disclosure policies.

Contingencies are unresolved issues, such as lawsuits or environmental clean-ups, which represent liabilities on the balance sheet. Companies are required to disclose in their financial statements when they are facing such possible liabilities and to state or estimate what the final cost will be if it can be... To get the full story, subscribe now.