What is the definition of 'remote' in the context of loss contingencies for Devon Creek?
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 term 'remote' in the context of loss contingencies refers to potential liabilities that are not accounted for or disclosed in the company's financial statements. Devon Creek follows ASC Topic 450 Contingencies, which dictates how loss contingencies are handled based on their likelihood.
Specifically, if a loss contingency is deemed 'probable' and the amount can be reasonably estimated, it is accrued as a liability. If 'probable' but not reasonably estimable, it requires disclosure. A 'reasonably possible' loss contingency also necessitates disclosure, including the potential range of loss if it can be determined.
However, loss contingencies considered 'remote' are not subject to either accounting or disclosure. Devon Creek's management believes that any unfavorable outcomes from claims, legal actions, or complaints would not materially affect the company's financial position. This means that potential franchisees should be aware that while Devon Creek acknowledges potential business-related claims, they do not anticipate these having a significant impact on the company's finances, and thus do not account for or disclose 'remote' possibilities.