LONDON, Ont. – A stunning $456-million judgement in a class-action lawsuit against insurance giant Great-West Lifeco (TSX:GWO) is a sign the courts are being more aggressive in keeping tabs on how corporate Canada conducts its affairs.
Justice Johanne Morissette ruled after a 45 day trial in London, Ont. that Great-West breached sections of the Insurance Companies Act by transferring money from the accounts of subsidiaries London Life Insurance Co. and Great-West Life Assurance Co. to finance the 1997 takeover of London Insurance Group, the parent of London Life Insurance Co.
The lawsuit represented policyholders from across Canada, but the biggest concentrations are in Ontario, Quebec, Saskatchewan and Manitoba.
CICA Handbook Section 3290 Contingencies states the following:
¨ The amount of a contingent loss should be accrued in the financial statements by a charge to income when both of the following conditions are met:
(a) it is likely that a future event will confirm that an asset had been impaired or a liability incurred at the date of the financial statements; and
(b) the amount of the loss can be reasonably estimated.
The following has been disclosed by Great-West Life co. See their Annual Report 2009:
in the financing of the acquisition of London Insurance Group Inc. (LIG) in 1997 by Great-West Life concluded on January 15, 2010. The Court reserved and a decision is expected later in 2010. Based on information presently known, these proceedings are not expected to have a material adverse effect on the consolidated financial position of the Company.
1. The Consolidated Operating Profits show a Net Income of $443 million, based on the above lawsuit: Is the amount material?
2. Should management have accrued the Loss on their financial statements, rather than simply disclosing the contingency?
3. Why do you think management may have avoided recording the potential liability?
Read more:See the Canadian Press
Review the 2009 Great-West annual report: Read Note 26 Contingent Liabilities
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