Question

The Occupational Safety and Health Administration (OSHA) is in the process of conducting a workplace inspection at Kenny's Corp. to determine whether the company is in compliance with standards on health and safety in the workplace. While the investigation is currently in process, Kenny's Corp. estimates that it is probable that an assessment will be made. The range of a reasonably possible assessment is between $25,000 and $100,000. How should this potential loss be treated for financial statement purposes? Accounting Treatment Amount 0 Dleace ancier all arts of the question

Answer 1

Update:
In US GAAP
contingency arises when there is a situation for which the outcome is uncertain, and which should be resolved in the future, possibly creating a loss. The accounting for a contingency is essentially to recognize only those losses that are probable and for which a loss amount can be reasonably estimated
When deciding upon the appropriate accounting for a contingency, the basic concept is that you should only record a loss that is probable, and for which the amount of the loss can be reasonably estimated. If the best estimate of the amount of the loss is within a range, accrue whichever amount appears to be a better estimate than the other estimates in the range. If there is no “better estimate” in the range, accrue a loss for the minimum amount in the range.
So , here the lowest amount is 25000 hence it should record an expense/loss of 25000 in income statement and 25000 accrued liability in balance sheet

Old Answer:

CONTINGENT LIABILITIES
Contingent liabilities, liabilities that depend on the outcome of an uncertain event, must pass two thresholds before they can be reported in financial statements. First, it must be possible to estimate the value of the contingent liability. If the value can be estimated, the liability must have greater than a 50% chance of being realized. Qualifying contingent liabilities are recorded as an expense on the income statement and a liability on the balance sheet.
If the contingent loss is remote, meaning it has less than a 50% chance of occurring, the liability should not be reflected on the balance sheet. Any contingent liabilities that are questionable before their value can be determined should be disclosed in the footnotes to the financial statements.
GAAP Compliance

Companies operating in the United States rely on the guidelines established in the generally accepted accounting principles (GAAP). Under GAAP, a contingent liability is defined as any potential future loss that depends on a "triggering event" to turn into an actual expense.
It's important that shareholders and lenders be warned about possible losses—an otherwise sound investment might look foolish after an undisclosed contingent liability is realized.
There are three GAAP-specified categories of contingent liabilities:
   Probable contingencies are likely to occur and can be reasonably estimated.
   Possible contingencies do not have a more-likely-than-not chance of being realized but are not necessarily considered unlikely either.
   Remote contingencies aren't likely to occur and aren't reasonably possible.
Any probable contingency needs to be reflected in the financial statements—no exceptions. Remote contingencies should never be included. Contingencies that are neither probable nor remote should be disclosed in the footnotes of the financial statements.