USA Accounting Treatment of Settlement (No Filing in Court Ever)


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My (small) corporation's tree roots caused damage to several people's homes. The two sides' attorneys went back and forth on this for over a year. Threats of going to court were made by the homeowners. The corporation acquired a new attorney. The new attorney firmly advised the corporation to settle and to pay for the repairs to the homes. The corporation did so. No filings in court were ever done.

At present, the corporation's Profit and Loss statements show the cost of the settlements under an infrastructure repair line item. Some shareholders think this is deceptive. They say there should be a line item for "legal settlement" or similar. Are they correct?

My corporation uses Quickbooks.
 
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Drmdcpa

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I do not think it matters much except that it should be listed in the other expense account category to separate it from standard and recurring operational expenses.

I personally would not allude to a legal settlement on the face of the financial statement. Such descriptions and details are often better left for footnotes.
 

bklynboy

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Internally, record in an account for legal settlements. But on face of financials, just roll up under operating expenses and if material disclose in notes.
 

Drmdcpa

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They are not operating expenses. Extraordinary and unusual.
 

bklynboy

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I understand the concept of extraordinary items was no longer required under ASU 2015-1?
 
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Drmdcpa

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They are not operational expenses by any definition. They should not be recurring.
 

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