Village Roadshow

Jason Haseldine October 2002

Background Information

Village Roadshow Limited (Roadshow) is being sued by an American company, Reading, for breach of the Trade Practices Act as highlighted in The Age, 20 March 2001, page 3.

A claim of “discriminatory and unfair manner” have been brought against Roadshow

The Australian Competition and Consumer Commission (ACCC) are currently investigating Roadshow’s cinema releases around Australia

Conciliator, Mr David Newton has stated in his confidential report obtained by The Age that “Roadshow’s action are inappropriate”


Liability

Reporting of information about liability in financial reports may be by way of recognition within the financial statements or disclosure within the notes of the financial report

SAC 4 states in paragraph 65 that a liability should be recognised in the financial statements when and only when:
It is probable that the future sacrifice of economic benefits will be required
The amount of the liability can be measured reliably.

Based on the above criteria there is currently no probability that future economic benefits will be sacrificed as Roadshow is not admitting liability and the claim is being defended in the Federal Court, further, the potential losses, if any, arising from the claim is not able to be reliably measured at reporting date.


Disclosure

AASB 1044 defines the requirements of a Contingent liability

Roadshow’s potential legal claim meets the definition in AASB 1004 3.1.4 (b) as it fails to meet the probable and reliable test

There is a present obligation under 4.1 (b) as the amount and timing of any claim is uncertain.

The potential claim fails the provision test 5.1 as again probability and reliability cannot be ascertained.

Claim is classified as contingent based on 7.1.5 (d) as Roadshow is defending a claim for unspecified damages and no amount of the claim can be measured reliably as at 30 June 2001.

Disclosure is required under 14.6 as the contingent liability is remote: refer 14.7 (a)

Recommendation

Based on the analysis in Slides 1 to 3, it is recommended to the Senior Partners that Village Roadshow disclose a contingent liability within their financial report as at 30 June 2001.

The disclosure should be narrated as follows:

Contingent Liability

AASB 1044 14.6 identifies the following information which must be disclosed in Roadshow’s financial report:

(a) A brief description of the contingent liability
(b) An indication of the amount or timing of any future sacrifice
(c) A statement that it is not practical to make an estimate as it can’t be measured at reporting date
(d) The existence and amount of any possible recovery.

Summary

United States company Reading sues Roadshow for breach of Trade Practices Act

Potential liability does not meet the definition under SAC 4

Contingent liability held under AASB 1044

Village Roadshow to disclose a note referring to the legal dispute within its financial report as at 30 June 2001.