Answered: Corporate Disclosures of Measurement…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter13: Auditing Debt, Equity, And Long-term Liabilities Requiring Management Estimates

Section: Chapter Questions

Problem 28RQSC

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Corporate Disclosures of Measurement Uncertainty Beginning in Q4 2015, several food safety incidents were reported involving Chipotle Mexican Grill, Inc. (CMG). Locate Chipotle’s 2018 Form 10-K and describe how the company describes its methods for estimating its contingent liability associated with its various food safety legal proceedings. Describe how this disclosure supports the accrual for such losses in Chipotle’s financial statements, and describe how this disclosure meets the Codification’s requirements for loss contingency disclosures. Next, look up the SEC’s Dear CFO Letter (2010) on loss contingency disclosures, aimed at improving transpar- ency in public companies’ loss contingency disclosures. Does this disclosure appear to satisfy the SEC guidance in that letter? Explain.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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