The Uncertainty Associated with a Loss Contingency Can Vary Widely

question 128

Essay

The uncertainty associated with a loss contingency can vary widely. GAAP requires companies to categorize the likelihood of occurrences of the loss into three categories. What are these three categories and list three common loss contingencies?

---

Definitions:

Professional Partnership

A form of business organization where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.

Negligence

A failure to take reasonable care or to act with the expected level of diligence, leading to harm or damage.

Limited Partnership

A business structure where one or more partners have limited liability, and at least one partner has unlimited liability.

Day-to-Day Business Management

The continuous, routine operations and activities involved in the administration and control of a company or organization.