Balance Sheet and Disclosure Notes Essay

Submitted By ctyson6
Words: 695
Pages: 3
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The topic I chose, focuses on the contingent liabilities of Cyberonics, Inc. Cyberonics is a medical device company with executive offices in Houston, TX. They specialize in implantable devices that provide nerve therapy for the treatment and management of epilepsy and treatment-resistant depression. Due to the nature of their business they are forced to comply with many U. S. government regulations as well as foreign regulatory boards. Domestically, they work closely with the Federal Drug Administration as well as the Centers for Medicare and Medicaid Services. In the following paragraphs, I will describe the contingency liabilities reported in their most recent 10-K and the citations given by the FASB on the reporting of these contingencies.

First, lets review the FASB’s codification standards regarding accounting for loss contingencies.
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FASB 450-20-25-2 An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
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------------------------------------------------- A) Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements…
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------------------------------------------------- B) The amount of loss can be reasonably estimated.
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FASB 450-20-50-5 Disclosure is preferable to accrual when a reasonable estimate of loss cannot be made. Further, even losses that are reasonably estimable shall not be accrued if it is not probable that an asset has been impaired or a liability has been incurred at the date of an entity’s financial statement…

In summary, if the loss is probable and incurred prior to the financial statements being released, the loss should be accrued if you can reasonably obtain an amount. Otherwise, there should be a disclosure note detailing the loss.
I was unable to find the specific loss contingencies accrued for by Cyberonics on their consolidated financial statements. However, I found mention of a contingency for litigation in their disclosure notes. Cyberonics manufactures and sales their products, which subjects them to the risk of product liability claims. They do carry a limited amount of product liability insurance but there is the probability that a claim could exceed their coverage and severely impact their consolidated financial statements. Below is the detail of their disclosure note:
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” We are named as a defendant in lawsuits or are the subject of governmental inquiries from time to time arising in the ordinary course of business. The outcome of such lawsuits or other proceedings cannot be
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