Is litigation a material off-balance sheet liability? 54

  • Section 401(a) of the Sarbanes-Oxley Act of 2002 requires full disclosure of any material off-balance sheet obligation or liability (including a contingent obligation or liability), to the extent that it is not fully reflected on the face of the financial statements. Disclosure is required if management determines that an off-balance sheet arrangement is material in the current period or may become material in the future. According to this standard, disclosure must be made unless the occurrence of a future material event is remote� or outside the reach of reasonable possibility.�
    Here’s my question: would this apply to litigation? If a company is being sued, and the suit is legitmate and is in a material amount, is the copmany required to disclose this under this rule and accompany regulations?
    thank you.

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  • Of course a company is to mention all obligations (also those in future) in their statements…
    So this sue-amount also.

  • just keep in mind that sox is not only about the balance sheet. It also covers all financial disclosures like monthly and quarterly reports and segmental reporting.
    If there is a legal claim in a material amount existing which you haven’t paid yet that to be disclosed.
    That means that there should be documented processes and documented and tested key controls in place for this process.

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