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Risk of Loss or Damage of
Enterprise Property
"At the date of
an enterprise's financial statements, it may not be insured against
risk of future loss or damage
to
its
property by fire, explosion, or other hazards. The absence of
insurance against losses from risks of those types constitutes an
existing condition involving uncertainty about the amount and timing of
any losses that may
occur, in which case a contingency exists as defined in paragraph 1.
Uninsured risks may arise in a number of ways, including (a)
noninsurance of certain risks or co-insurance or deductible clauses in
an insurance contract
or (b) insurance through a subsidiary or investee to the extent not
reinsured with an independent
insurer.
Some
risks, for all practical purposes, may be noninsurable,
and the self-assumption of those risks is mandatory."from Appendix A of FAS No. 5 (self-insurance) "The absence of insurance does not mean that an asset has been impaired or a liability has been incurred at the date of an enterprise's financial statements. Fires, explosions, and other similar events that may cause loss or damage of an enterprise's property are random in their occurrence. With respect to events of that type, the condition for accrual in paragraph 8(a) is not satisfied prior to the occurrence of the event because until that time there is no diminution in the value of the property. There is no relationship of those events to the activities of the enterprise prior to their occurrence, and no asset is impaired prior to their occurrence. Further, unlike an insurance company, which has a contractual obligation under policies in force to reimburse insureds for losses, an enterprise can have no such obligation to itself and, hence, no liability. " |