|
FASB Statements
Summary
| |
Ability to
Reasonably Estimate
the Potential Loss |
Likelihood
of an Unfavorable Outcome |
Reasonable
Estimate |
No
Reasonable
Estimate |
| Probable |
 Accrue
- Disclose nature of contingency
- Disclose amount of
accrual
|
Accrue
- Disclose nature of contingency
- Disclose amount of
accrual
|
| Reasonably Possible |
No
accrual
- Disclose nature of
contingency
- Estimate
of possible loss or range of loss
|
No
accrual
- Disclose nature of contingency
- State that a reasonable estimate of a
possible loss or range of loss cannot be made
|
|
Remote
|
No
accrual
- No disclosure
- Limited exceptions, e.g., guarantees
|
No
accrual
- No disclosure
- Limited exceptions, e.g., guarantees
|
| | | |
SEC FAQs
SEC_CODE_REF_0090001192884
|
SEC's Current accounting issues
2005
-
Topic
II.G Segment
Disclosure
FASB Statement No. 5, Accounting for
Contingencies, requires accrual of payments for contingent liabilities if
payment is both probable and estimable. SFAS 5 also requires disclosure of the
nature of any contingency, including the amounts that might be paid, if a loss
is at least reasonably possible. Other literature also provides accounting and
disclosure guidance, such as Staff Accounting Bulletin Topic 5.Y., Accounting
and Disclosures Relating to Loss Contingencies, FASB Interpretation No. 14,
Reasonable Estimation of the Amount of a Loss, and AICPA Statement of Position
94-6, Disclosure of Certain Significant Risks and Uncertainties.
Registrants, their auditors, and their
advisors have a responsibility to critically assess the claims against the
company in order to identify those for which losses should be accrued and those
that are not accrued because the success of the claim is only reasonably
possible. Disclosure should discuss the nature of the claim, the amount accrued,
if any, and the possible range of loss for claims where any amount within the
range of reasonably possible loss is material. Circumstances where a loss was
accrued for a claim without disclosure in prior filings of the nature of the
claim and the range of reasonably possible loss should be rare due to the nature
of most contingencies. A registrant that accrues a significant loss for a
contingency, but whose prior disclosure of the low end of the range of
reasonably possible loss was zero with no loss accrued, should ensure that there
is robust disclosure that explains what triggered the significant loss in the
period in which it was recorded.
Income tax contingencies also fall
within the scope of SFAS 5. FASB Statement No. 109, Accounting for Income Taxes,
also provides disclosure requirements for income tax items that arise as a
result of temporary differences. As with other contingencies, such as litigation
contingencies, registrants need to balance concerns regarding confidentiality
with the need for the registrants investors, analysts, and regulators to gain a
clear understanding of the registrants liquidity, as well as results of
operations and financial position, through footnote disclosure and discussions
in MD&A.
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Related Topics
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