Reference no: EM131812577

Bird Ltd, a listed company, provides food to function center's that host events such as weddings and engagement parties. After an engagement party held by one of Bird Ltd's customers in June 2017, 100 people became seriously ill, possibly as a result of food poisoning from products sold by Bird Ltd. Legal proceedings were commenced by legal representatives of the people seeking damages from Bird Ltd, which disputed liability by claiming that the function center was at fault for handling the food incorrectly. Up to the date of authorization for issue of the financial statements for the year to 30 June 2017, Bird Ltd's lawyers advised that it was probable that Bird Ltd would not be found liable. However, two weeks after the financial statements were published and released to shareholders, Bird Ltd's lawyers advised that, owing to developments in the case, it was probable that Bird Ltd would be found liable and the estimated damages would be material to the company's reported profits.

Required:

Explain whether Bird Ltd should recognize a liability for legal damages in its financial statements as at 30 June 2017? How should it deal with the information it receives two weeks after the financial statements are published? You should refer to relevant parts of the AASB conceptual framework and AASB accounting standards in your answer.