To Recognize or Not to Recognize, That Is the Question
Shakespeare Inc., a private publishing company issued its F/S on March 20, 2012. There were several accruals and events that the management of Shakespeare is considering to determine if they should be recognized or disclosed in Dec 31, 2011 F/S. In my opinion, the important things to focus on subsequent events are the period they effect and if their influence is material or not, so that in conclusion, the F/S are fairly presented.
1. Should the information pertaining to actual claims incurred as of B/S date that became available after the B/S date be considered in determining management’s best estimate of the medical benefits payable? If so, how does this information impact the amount recognized or disclosed?
According to ASC 720-20-25-14, it requires that insured entities including those that use a claims-made approach for insuring certain risks, recognize a liability for the probable losses from incurred but not reported claims and incidents if the loss is both probable and reasonably estimable. So, the estimation of medical benefit payables should be recognized. According to ASC 944-40-35-1 Changes in estimates of claim costs resulting from the continuous review process and differences between estimates and payments for claims shall be recognized in income of the period in which the estimates are changed or payments are made. Since the change in estimation takes place after December 31, the change should not be recognized but instead disclosed in financial reporting.
We identified that the information pertaining to actual claims incurred as of the balance sheet date that became available after the balance sheet date should be considered in determining management’s best estimate of the medical benefits payable. ASC 450-20-25-6 states, "After the date of an entity's financial statements but before those financial statements are issued or are available to be issued