What is included in the calculation of the liability for claims and judgments?

The calculation of the liability for claims and judgments accurately incorporates both reported claims and incurred but not reported claims. Reported claims consist of those that have already been submitted and acknowledged, meaning the organization is aware of the liability they represent. These are included to ensure that any known financial obligations are accounted for.

On the other hand, incurred but not reported claims (IBNR) are potential claims that have occurred but have not yet been formally communicated. These claims are considered significant because they represent liabilities that the organization is legally obligated to address, even though they haven't been specifically recognized yet. Including IBNR in the calculation is essential for a complete and accurate representation of potential future liabilities.

By considering both reported claims and IBNR, the calculation provides a more comprehensive understanding of the potential financial impact of claims and judgments on the organization, allowing for informed decision-making and financial planning. This dual approach ensures that the organization is prepared for existing commitments and those that are anticipated, safeguarding its financial health and compliance with accounting standards.