Question

referencing the conceptual framework, discuss if NAB should record a liability when a lawsuit is launched?

During the global financial crisis In July 2008, the National Australia Bank (NAB) was exposed to collateralised debt obligations (CDO) Consequently, NAB wrote down $1 billion associated with these risky Instruments with its share price plummeting and shareholders losing $4SQ million. A shareholder class action was initiated against NAB. The class was settled in 2010 with NAB agreeing to pay $115 million - a fraction of the loss to shareholders. The lawsuit claimed NAB failed to disclose the extent of its subprime investments. Yet, despite the settlement, NAB denied liability and advised the settlement was reached on a "commercial basis' only. (Source: Wilkins. G 2012, 'NAB pays $11Sm to settle class action', The Sydney Morning Herald, 10 November.)

Answer 1

Yes, NAB should record liability when a lawsuit is launched, due to the facts the occurrence of the events are contingent upon the suit which was launched. If the lawsuit was not in favor of NAB the effect on the financial position of the company will not be impacted due to the fact that the liability was already recorded.