The assessment covers pending litigation, threatened claims, warranty obligations, environmental remediation, tax positions, and regulatory exposure. Estimates inform purchase price, indemnity structure, and reserve requirements.
Accounting reserves may understate actual exposure.
Alternative Names:
Contingent Liability Review|Liability Quantification
Why it Matters?
Book reserves reflect accounting standards for probable and estimable losses rather than realistic settlement values, which means a target's balance sheet frequently understates litigation exposure substantially. Independent assessment of the actual docket is what produces a usable number. Aggregate exposure across many small claims also matters more than any individual matter for operating businesses with recurring claim types.
Frequently Confused with
Related terms
Frequently asked questions
Do book reserves reflect actual exposure?
What matters most for operating businesses?
