Matter liability estimates
One of the law department's most important obligations is to provide liability estimates about potential loss contingencies to the company's accountants. Most law departments have a process to ensure that these liability estimates are appropriately and timely provided. Tracker provides tools to help you implement this process.
note
This information is important to help your law department implement its loss contingency tracking and should be reviewed by the head of your litigation department.
Liability estimates formats
3 formats are available for tracking loss contingencies (in other words, estimates of contingent liabilities) in the matter profile. You can find this setting in
Settings > Matter Setup > Miscellaneous Matter Options
. Format | Information |
|---|---|
Standard format | The Standard format lets you enter an estimate of exposure and also specify a maximum potential exposure. This is the only format choice for estimates of potential recovery. Companies most commonly use one of the FAS 5 formats and FAS 5 is the default format in Tracker. |
FAS 5 | The FAS 5 format contains fields relevant to the requirements imposed by Financial Accounting Standards No. 5 (FAS 5) established by the Financial Accounting Standards Board. The FAS 5 format lets you rate the likelihood of loss, and if applicable, provide a best estimate of outcome. The FAS 5 format only applies to loss estimates, not recovery estimates. For estimates of potential recovery, the only available format is the Standard format. If you use this format, users will be prompted to determine the company liability estimates when creating a new matter. The prompts users see depend on the settings on the Miscellaneous Matter Options Page page. If the requirement is Probable & Reasonably Possible , users creating a new matter will be prompted to enter an estimated amount or range. If the requirement is Probable Only , users will be required to enter the estimates only if they indicate that the likelihood of loss is Probable . If the user indicates Remote as the possibility of loss, no further action will be necessary. |
FAS 5 with Materiality Threshold Format | The FAS 5 with Materiality Threshold format is almost identical to the FAS 5 format, except that the company establishes a threshold over which it considers the potential liability to be material. Accrual and disclosure obligations are contingent upon the estimated amount of the liability being material. If you use this format, when creating new matters, users will be prompted to be required to define an amount for the materiality threshold, in addition to specifying the company liability estimates. If the likelihood of the liability is not previous your company's materiality threshold, the analysis ends without the user providing a dollar amount for potential liability. If your company uses simply the FAS 5 format, the analysis is not affected by the materiality threshold, and a user may provide a liability estimate even if it is less than your company's materiality threshold. |
Change the liability estimates format
This field is configured in Tracker by a database administrator and changing it carries the risk of data loss. In the unlikely event you need to change this format, contact Legal Tracker support.
Display estimable analysis field
User options for the
Display Estimable Analysis only if
field are:- Probable & Reasonably Possible: If this option is selected, users are required to provide a liability estimate (assuming the user also specifies that the loss is reasonably estimable) if the likelihood of the loss is probable or reasonably possible.
- Probable: If this option is selected, users are required to provide a liability estimate (assuming the user also specifies that the loss is reasonably estimable) only if the likelihood of the loss is probable.
The option you will define here is whether you want users to provide a liability estimate if the likelihood of a loss is reasonably possible as opposed to probable.
To view the setting in your company's system, select
Settings > Matters Setup > Miscellaneous Matter Options
.note
This option is editable only by a database administrator. Most users will need to contact Tracker Support to have this setting changed.
The Financial Accounting Standards No. 5 provides a general framework for determining loss contingencies. However, the correct selection for your law department depends on your law department's policies about loss contingencies. For example, some might conclude that a 65% likelihood is probable and therefore record an accrual, while others might conclude that 65% is only reasonably possible. Consistency is the most important consideration, and you should develop a policy and document its application.
Setup features related to liability estimates
Set up custom field-level help to simplify compliance
The ability to customize the help files in Tracker helps ensure that your users have the information they need to consistently apply your law department's FAS 5 policies. Tracker lets organizations provide custom help files for certain fields that appear on the New matters page. We recommend adding custom help for the
Company Liability Estimate
field that explains your policies.When custom help is available for a field, the help icon appears next to the field. Users can download this custom help when creating new matters.
Define delayed-required fields to ensure accurate estimates
You can set up delayed-required fields to ensure an estimate is provided after the matter is created. Making the company and/or law firm liability estimate fields required is recommended to ensure that information is provided in Tracker. However, when a litigation matter is entered in Tracker, it may not be possible to immediately provide the relevant information. For example, there may not have been sufficient time for a legal or factual analysis.
Tracker gives you the ability to make a field require a specified number of days after the matter is created. For example, most companies specify that the liability estimate becomes required 90 days after the matter is created. A different number may be appropriate for your company, but the important point is to decide when the liability estimate fields should become required.
Configure company and law firm access
You can control whether the fields related to liability estimates are visible for company and law firm users. Users can't edit these fields. The relevant fields can be enabled separately for company users and law firm users. In other words, there is a separate set of fields for company users and law firm user. Note, however, that company and firm estimates of exposure must use the same format. In other words, if you select the Standard format, both the company estimates and firm estimates will be in the Standard format.
To set up the options for these fields, select
Settings
in the left navigation, then select Matter Type-templates
. Select the matter type template and go to the Field Options
collapsible section.