Identifying Self-Funded Liabilities

Pinnacle consultants can assist you in identifying and determining the net present value of liabilities that require an accrual in accordance with SOP 87-1 (Accounting for incurred-But-Not-Reported Liabilities) and ASC 450 (FAS-5).

In accordance with the accounting pronouncements above, companies are required to maintain an accrual for self-funded liabilities, however many are not aware of this requirement. Although it doesn’t always pose a problem because the liability may be smaller and considered immaterial, however we have seen clients who have not analyzed these liabilities on a regular basis, and as a result, the liabilities become material and an accrual by external accountants becomes necessary. Failure to address this can result in a reduction in year-end earnings and a qualified opinion.

Pinnacle recommends that our clients identify all of their self-funded liabilities and continuously monitor the aggregate outstanding value to determine when an accrual might be appropriate. Such self-funded liabilities could be those areas where a conscious decision was made to self-insure, amount in excess of available policy limits, deductibles, and uninsured claims.