Question

The two basic requirements for the accrual of a loss contingency are supported by several basic concepts of accounting. Three of these concepts are the period of time assumption, the recognition principle, and the qualitative characteristic of verifiability.

Required: Discuss how the two basic requirements for the accrual of a loss contingency relate to the three concepts mentioned above.

Answer 1

As per the standards of Financial Accounting and Reporting the two basic requirements for accrual of loss contingency which supported by several basic concepts of accounting are:

1) Information available prior to issuance of the financial statements indicates that it is probable that an asset
had been impaired or a liability had been incurred at the date of the financial statements. It is implicit ithis condition that it must be probable that one or more future events will occur confirming the fact of the
loss.