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Q. > Please Help: accounts
Nice Nuke Corporation, which owns and operates a nuclear plant, recently received notice from the provincial government that it has to find a new disposal site for its radioactive waste. The company was also told that it is responsible for its radioactive waste. The company was also told that it is responsible for the environmental cleanup of the old site. The vice-president of engineering and the vice-president of finance meet the discuss the situation. The engineer says that it could take many years to clean up the site and that the cost could be considerable-a minimum of $50 million and perhaps as much as $100 million.
The vice-president of finance says that there is no way that the company can afford to record this liability. He says he is not even sure that he wants to disclose the potential liability, because of how this could affect the company's share price.
questions -
1) what are the alternative options that the company can use?
2)s there anything unethical in what the vice-president of finance suggests doing about this potential liability?
3)what do you recommend the company do?
Please do suggest!!!!
answered Oct 21, 2011 by Ashish Karundia , New Delhi
Dear Pooja,
In the situation mentioned above,the company should ideally record the liability of the same. However, if the company does not wants to record the same because it may adversely affect the share prices, then a disclosure of the same can be given in the notes to the accounts/accounting policies by citing reasons (i.e. that the liability has to be incurred in future and the same cannot be reasonably estimated at present). However, the statutory auditor of the company can qualify the audit report for not making the provision.
Should you have any doubt, please feel free to revert. Further, just want to check whether the situation mentioned above is a FACTUAL case or it is a hypothetical situation (please revert on the same asap as the situations can be dealt differently in either case).
answered Oct 23, 2011 by Ashish Karundia , New Delhi
Dear Pooja,
If you carefully read the answer given, then you will note that I have said that the company should ideally record the same. However, if the company only discloses the same in notes to accounts, then in such event the statutory auditor may qualify the report.
Hope this clarifies the position.
Experts Panelist
Comments
Pooja Jajoo
19-Oct-2011 , 01:16:54 pmPlease do suggest the answer.....
CA VIPIN GARG
20-Oct-2011 , 09:33:04 amDear Pooja Ji, as per the above reading, I think this is realy a very bad situation the company is facing. In my personal opinion, the finance vp is very correct because it will surely destroy the market worth and market share of the company very badly, the company should talk to the government against the notice and try to know the reason/purpose of the notice for shifting the side for nuclear project. The company should try to convince the government for not shifting the side, they can give any other social attractive proposal to the government which fulfill their purpose also. You can also tell the government that it is not possible at all to shift the side and if they still compell to do so then the company should say they have to close the project and then govt has to arrange the all power which is also not so easy for any govt. Surely there will be some solution there and the matter will be sort out very soon. I am very much interested in knowing ultimately how the above problem has been sort out, please do update me. Have a nice day
Pooja Jajoo
22-Oct-2011 , 04:12:36 pmThanks alot for replying Mr Ashish Karundia. The situation mentioned above is a hypothetical one.But I just wanted to confirm, is that possible to show this in notes on accounts without any effect in P & L, as due to the Government's notice this is no longer a contingent liability, rather a certain future expenditure.
Pooja Jajoo
22-Oct-2011 , 04:26:18 pmThanks Mr Vipin... Since this being a hypothetical situation, I cant tell u about sorting out of this problem, but what I suggested was to ask the government for some subsidy for the site relocation.