Filed - Supreme Court of Texas

It is undisputed that Financial Accounting Standards Board (“FASB”) Statement
of Financial Accounting Standards No. 5 (“FASB No. 5”), now codified as 450-20-20 et.
seq., provides the general framework for evaluating liabilities.
Both of the
McCulloughs’ CPA witnesses described FASB No. 5 and its principles. FASB No. 5
refers to liabilities as “loss contingencies” and breaks them down into three categories:
probable (“likely to occur”)
reasonably possible (“more than remote but less than likely”)
remote (“chance of the future event or events occurring is slight”)
This categorization dictates whether the liability is recognized on the balance sheet,
disclosed in footnotes, or not mentioned in the financial statement, respectively. FASB
No. 5 requires accrual as a charge to income (i.e., counting in the balance sheet) if the
loss contingency is both probable and the amount of the loss can be reasonably
estimated.
The McCulloughs begin their abuse of discretion argument with the argument
that a trial court abuses its discretion when it ignores “the only evidence offered to
prove a vital fact when such evidence is otherwise credible and free from contradictions
and inconsistency.” 21 The McCulloughs argue that the trial court disregarded the only
evidence on whether accrual of the judgment as a liability was required by GAAP, the
testimony of their CPA witnesses, Melton and Thomas. However, a more careful
review of the record reflects that the trial court followed GAAP and resolved conflicts in
the evidence to conclude that the $365,000.00 contingent money judgment should not
21 See Motion to Review, p. 8.
APPELLEES’ RESPONSE TO MOTION TO REVIEW ORDER ON SUPERSEDEAS BOND – Page 10