What accounting standard does Devon Creek follow when accounting for legal matters and other contingencies?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company may be subject to various claims, legal actions and complaints arising in the ordinary course of business. In accounting for legal matters and other contingencies, the Company follows the guidance in ASC Topic 450 Contingencies, under which loss contingencies are accounted for based upon the likelihood of incurrence of a liability. If a loss contingency is "probable" and the amount of loss can be reasonably estimated, it is accrued. If a loss contingency is "probable" but the amount of loss cannot be reasonably estimated, disclosure is made. If a loss contingency is "reasonably possible," disclosure is made, including the potential range of loss, if determinable. Loss contingencies that are "remote" are neither accounted for nor disclosed.
In the opinion of management, all matters are of such kind, or involving such amounts of unfavorable disposition, if any, would not have a material effect on the financial position of the Company.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 45)
What This Means (2024 FDD)
According to Devon Creek's 2024 Franchise Disclosure Document, the company adheres to ASC Topic 450 Contingencies when accounting for legal matters and other contingencies. This accounting standard dictates how Devon Creek addresses potential losses arising from claims, legal actions, and complaints that may occur during the normal course of business. The standard emphasizes the likelihood of incurring a liability to determine the appropriate accounting treatment.
If a loss contingency is deemed "probable" and the amount of the loss can be reasonably estimated, Devon Creek will accrue the loss. If the loss is "probable" but cannot be reasonably estimated, the company will disclose the contingency. For contingencies considered "reasonably possible," Devon Creek will provide disclosure, including the potential range of loss if it can be determined. Contingencies considered "remote" are neither accounted for nor disclosed in the financial statements.
Devon Creek's management believes that any unfavorable outcomes from claims, legal actions, and complaints would not have a material effect on the company's financial position. This statement suggests that while Devon Creek acknowledges the possibility of such issues, they do not anticipate these issues will significantly impact the company's financial health.