1 February 5, 2012 Wolfpack, LLC 450 Newman Court Raleigh, NC 27610 Mr.

Jack Williams, CEO Triangle Construction Inc. 5000 Triangle Rd. Raleigh, NC 27613 Dear Mr. Williams, On January 5, 2012, a former employee of Triangle Construction Inc. was injured on the job. This employee notified Triangle at the end of January that they were suing for $500,000 in damages. Triangles corporate lawyer advised them to settle out of court with the employee for $300,000, which was deemed a probable event by said lawyer. The probable event is a loss contingency that will be recognized by Triangle on their financial statements at some point in time. The question in concern, however, is how and when this should be reported pertaining to the un-audited and un-released 2011 financial statements and whether a disclosure should be made to those statements. The contingency in question is rather difficult to deal with. Because the lawsuit falls within the lag period between the calendar year-end of Triangle and Wolfpacks scheduled engagement to audit their financial statements, one would think that Triangle should simply report the loss contingency on their 2011 financial statements and move on. However, Financial Accounting Standards Board (FASB), the authority for establishing financial reporting rules and standards set forth by the SEC, Standards dictate otherwise. FASB ASC 450-20-25-21 states that a loss contingency should be accrued if two conditions are met: the probable loss had been 1 The Standards contents are paraphrased to provide an easier read for the client. Additionally, all referenced standards can be found at http://asc.fasb.org/.

2 incurred at the date of the financial statements, and that the amount of the loss can be reasonably estimated. Only one of these conditions meets the facts of this case the amount of the lawsuit can be reasonably estimated , so further research is necessary. FASB ASC 855-10-25-3 fits the facts of the case at hand perfectly2: An entity shall not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before financial statements are issued or are available to be issued. Therefore, the litigation is a Nonrecognized Subsequent Event. Triangle should not report the loss contingency, even though it is probable and estimable in nature, on their 2011 financial statements. The other issue expressed by Triangle is whether or not any form of disclosure of the loss contingency should be made on their 2011 financial statements, regardless of a physical report on the financial statements occurring. Again, FASB Standards dictate otherwise. FASB ASC 450-20-25-2(b) states that the amount of the loss should be reasonably estimable. Per Triangles corporate lawyer, the $300,000 out-of-court settlement has been deemed probable; therefore it is an estimable amount. FASB ASC 450-20-50-3 states that: Disclosure of the contingency shall be made if there is at least a reasonable possibility that a loss or an additional loss may have been incurred. This is based on two subsequent conditions, the first of which is met3: An accrual is not made for a loss contingency because any of the conditions in FASB ASC 450-20-25-2 are not met. Finally, FASB ASC 450-20-50-4(a-b) provides guidance for the nature of the disclosure, stating that: The disclosure shall include both of the following: The nature of the 2 Further examples of Nonrecognized Subsequent Events, to provide legitimacy for the handling of the case at hand, can be found in FASB ASC 855-10-55-2(a-g). 3 The second condition is not disclosed here to provide conciseness of the report and because it is unnecessary for the case. The condition that meets the cases standard is FASB ASC 450-20-503(a), not (b).

3 contingency, and An estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. Therefore, Triangle should disclose, our recommendation is in a note to the financial statements, both the nature of the loss contingency and the estimable amount of the probable loss. Purely as a guiding measure for your purposes, we would potentially disclose as follows: After the year-ended 12/31/2011, on January 5, 2012, one of our former employees was injured on the job and has sought damages in the amount of $500,000. After conferring with our lawyers, we have been advised to attempt an out-of-court settlement for $300,000, which we expect to be accepted by the employee. Therefore, this event is probable in nature. Standards dictate that we do not report this loss on the 2011 financial statements, rather include this disclosure for our readers concern. Assuming the employee accepts the settlement, the loss will be recorded on our 2012 financial statements, however the nature of the loss is uncertain at this time. Rest assured though, this is not a recurrent event. As a CPA for Wolfpack, LLC, accounting standards are in compliance with FASB Standards and only reveal information given by Triangle Construction, Inc., and its related parties. If any further issues arise from this litigation, we would be glad to help in any way possible. For the time being, though, we appreciate your business and look forward to a successful audit in the coming weeks. Again, thank you and best of luck as you move forward. Sincerely,

Andrew L. Joyner, CPA Wolfpack, LLC