Danle Corporation – Case 10-5
Discuss whether you believe that the conclusion reached by Danle to omit disclosure regarding to the class-action litigation was appropriate for the year ended December 31, 2009.

In our opinion, it was not appropriate for Danle Corporation to omit disclosure relating to the class action lawsuit for the year ended December 31, 2009.
First, it must be noted that ASC 450-20-25-2 indicates the following:
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:
a. Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that
Thus, the SEC’s Division of Corporate Finance will require disclosure of the same.
Danle should also expect that the SEC will inquire about Danle’s lack of disclosure regarding their lack of the following disclosures as required by ASC 450-20:
• What are the costs of legal defense? Are they material and does Danle have insurance coverage to offset the costs?
• Is it reasonable likely that Danle has exposure to additional less? If so, why was this not disclosed?
• To what extent are these estimates and assumptions used by management sensitive to changes? Danle did not disclose this information.
• The SEC may challenge the loss range estimate ($50M - $350M), and Danle’s decision to accrue the lower value of the range. Danle would argue that there is no “best estimate” and that the loss accrual of $50M was made. They would further argue that the disclosure included a range of potential loss.

If Danle’s Form 10-k for the year ended December 31, 2010, were to be reviewed by the SEC’s Division of Corporation Finance, what comments may Danle expect to receive regarding its disclosure in that period? Discuss the basis for the comments you have identified.
The SEC may question the increase in the estimated loss range and Danle’s decision to increase its accrual from $50M to $200M, which is a significant increase in one year. The SEC may inquire to what