Acct 242 Intel Case
Question 1: At any of these dates, did Intel have a contingent liability as defined by SFAS #5?
June 30: Intel has discovered the flaw No contingent liability, no disclosure. According to Intel, a series of tests has showed that an error would occur only once every nine billion random calculations, or every 27,000 years for most users. Therefore, the chance that customers would encounter errors in calculations on their Pentium-driven PCs is slight and the event that customers would request chip replacement is remote. This means that the implementation of a replacement program is not probable, nor is the cost of such a program reasonably estimable because the theoretical participation rate is close to or equal to 0%.
October 31: Dr.Nicely has posted information about the flaw on the Internet and started an active discussion group No contingent liability, maybe disclose. The discussion started by Nicely continued to flame accusations and threats to Intel, so the replacement of Pentium chips might become an event that is more likely than remote but less likely than probable. However, since Nicely was involved in intense and continuous number crunching far beyond that of a typical user, he was more likely to encounter errors and could not represent a typical user. Without more information on the frequency of the flaw encountered by a typical user, Intel might not be able to decide on a replacement plan, so that replacement costs were not reasonably estimable. Therefore, if anything, Intel might be on the hook to make a disclosure of a potential future expense.
November 25: Article in Electrical Engineering Times has appeared, a story has been broadcast on CNN, and articles have appeared in the New York Times and Boston Globe. No contingent liability, should disclose. The Internet discussion caught the attention of reporters, and has caused a negative impact on Intel’s stock price, which dropped two percentage points. As
June 30: Intel has discovered the flaw No contingent liability, no disclosure. According to Intel, a series of tests has showed that an error would occur only once every nine billion random calculations, or every 27,000 years for most users. Therefore, the chance that customers would encounter errors in calculations on their Pentium-driven PCs is slight and the event that customers would request chip replacement is remote. This means that the implementation of a replacement program is not probable, nor is the cost of such a program reasonably estimable because the theoretical participation rate is close to or equal to 0%.
October 31: Dr.Nicely has posted information about the flaw on the Internet and started an active discussion group No contingent liability, maybe disclose. The discussion started by Nicely continued to flame accusations and threats to Intel, so the replacement of Pentium chips might become an event that is more likely than remote but less likely than probable. However, since Nicely was involved in intense and continuous number crunching far beyond that of a typical user, he was more likely to encounter errors and could not represent a typical user. Without more information on the frequency of the flaw encountered by a typical user, Intel might not be able to decide on a replacement plan, so that replacement costs were not reasonably estimable. Therefore, if anything, Intel might be on the hook to make a disclosure of a potential future expense.
November 25: Article in Electrical Engineering Times has appeared, a story has been broadcast on CNN, and articles have appeared in the New York Times and Boston Globe. No contingent liability, should disclose. The Internet discussion caught the attention of reporters, and has caused a negative impact on Intel’s stock price, which dropped two percentage points. As