The Contingencies
Off-balance-sheet liabilities, successor liability and the four legitimate numbers for the same portfolio
The thesis
The same litigation portfolio produces four defensible numbers: the amount provisioned, the probability-weighted expected value, the amount disclosed in the notes and the total exposure. Classification as probable, possible or remote is a legal opinion, not a measurement
What the study establishes
The provisioned amount sits at the 0.5th percentile of the simulated distribution, and tends to be exceeded in 99.5% of scenarios
The difference between deducting the provisioned amount and the expected value equals 24% of the partner's capital
The business combinations standard requires the buyer to recognise at fair value what the seller did not provision
Contents
- The four numbers
- Labour litigation
- Tax litigation
- The simulation
- Successor liability
- Escrow and insurance
- The structure
- The gaps
- The mandate