Indemnification

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Indemnification

Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgments resulting from lawsuits pertaining to their conduct.

Indemnification

The collection of money for damages. For example, indemnification occurs in insurance when the policyholder receives money to compensate for an insured event. Likewise, a company may receive indemnification from an employee, especially a major executive, if the company suffers damages in a lawsuit as a result of the employee's illegal or unethical actions.

indemnification

The process of shifting a loss from one party to another either because of an express agreement by the parties or because the law requires it under the circumstances.

Example: A purchaser of real estate discovers the property is subject to a lien that was placed against it prior to sale and pays the lien in order to avoid foreclosure; then the purchaser is entitled to indemnification, or reimbursement, from the prior owner who breached the warranties in the deed.

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References in periodicals archive ?
Mirror image accounting applies to the extent that the terms of the indemnification arrangement fully cover the related exposure.
Where the indemnification covers the implied interest cost associated with spreading the deduction over a longer period, the indemnification asset would not equal the related liability.
The indemnification covers any tax exposure that exceeds a specified dollar amount.
There may be scenarios where the terms of the indemnification fully cover the tax exposure, but the related classification or measurement may differ, such as:
In this situation, mirror image accounting may apply (assuming that interest and penalties are covered by the indemnification); however, the indemnification asset would mirror the total of the tax liability and the related interest and penalty accruals.
There may also be scenarios where the seller provides a blanket indemnification for taxes owed in prior years, but no specific tax positions are reserved.
If the seller indemnifies the buyer for the related tax exposure, the buyer would record a $20 indemnification asset even though no liability is presented.
In connection with the implementation of ASC 740 by public investment funds, certain investment management businesses approached the SEC staff for guidance on accounting for potential indemnification provided by a fund's advisor.