Accounting Standards dictate the involvement of outside legal counsel in determining legal issues for the Notes and the inclusion of financial impact estimates. Management's use of estimates in financial statements is essential for accurate reporting.
Accounting Standards require that outside legal counsel play a role in determining when legal issues should be included in the Notes to the financial statements. The legal counsel evaluates the likelihood of the issue resulting in a loss and its materiality to the organization.
When it comes to including an estimate of the financial impact of legal issues in the Notes, Accounting Standards necessitate disclosing a reasonable estimate if the occurrence is probable and the amount can be reasonably estimated. This provides transparency to stakeholders regarding potential financial risks.
The use of estimates in preparing financial statements is crucial, as it requires management to make judgments that might impact reported financial figures. These estimates influence the amounts recognized on the balance sheet and income statement, emphasizing the importance of accuracy and transparency in financial reporting.
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