This free, guided checker walks your finance team through the key decision points for ASC 450 Loss Contingency Accrual. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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A loss contingency is an existing condition involving uncertainty about a possible loss that will be resolved when a future event occurs or fails to occur. General or unspecified business risks are not loss contingencies and are never accrued.
No loss contingency exists at the reporting date; the accrual and disclosure requirements of ASC 450-20-25-2 and ASC 450-20-50 do not apply.
Official guidance: FASB Accounting Standards Codification
Run this scope screen before applying the ASC 450-20 model. ASC 450-20 covers general loss contingencies such as litigation, claims, and self-insurance, but guarantees fall under ASC 460, expected credit losses on financial assets under ASC 326, and environmental and asset retirement obligations under ASC 410. Applying the ASC 450-20 probable-and-estimable test to a matter that another topic governs is a common misapplication that produces the wrong measurement and disclosures.
Account for the guarantee under ASC 460-10, which requires initial recognition of the noncontingent stand-ready obligation at fair value (ASC 460-10-25-4). Measure the expected credit loss under the CECL model in ASC 326-20-30, not the probable-and-estimable test of ASC 450-20. Account for the obligation under ASC 410; environmental remediation uses ASC 410-30 and asset retirement obligations use ASC 410-20.
Official guidance: FASB Accounting Standards Codification
For an unasserted claim or assessment, first assess whether assertion is probable. If assertion is not probable, no accrual or disclosure is required. If assertion is probable, continue and evaluate the likelihood of an unfavorable outcome.
Assertion of the unasserted claim is not probable; neither accrual nor disclosure is required under ASC 450-20-50-6.
Official guidance: FASB Accounting Standards Codification
ASC 450-20 uses three likelihood levels: probable (likely to occur), reasonably possible (more than remote but less than likely), and remote (slight chance). Base the assessment on all information available before the financial statements are issued, including the views of legal counsel.
Reasonably possible loss - disclose the nature and the possible loss or range of loss; do not accrue (ASC 450-20-50-3 through 50-5). Remote likelihood - no accrual, and disclosure of the loss contingency is generally not required (ASC 450-20-25-2).
Official guidance: FASB Accounting Standards Codification
Accrual requires both a probable loss and a reasonable estimate. A range qualifies as a reasonable estimate; inability to determine a single point estimate does not by itself avoid accrual.
Probable but not reasonably estimable - disclose the contingency now and accrue in the period the amount first becomes estimable (ASC 450-20-25-2; ASC 450-20-50-5).
Official guidance: FASB Accounting Standards Codification
Once a loss is probable and estimable, evaluate any related recovery separately. A recovery is recognized as an asset only when its realization is probable, and it is not netted against the liability unless a right of setoff exists; a recovery that is merely reasonably possible is a gain contingency that is disclosed but not recognized. Netting an uncertain recovery against the accrued loss, or failing to gross up the liability, is a common error.
Record the probable, estimable recovery as a separate asset and continue to measure the gross loss accrual (ASC 210-20-45-1). Accrue the gross loss; any uncertain recovery is a gain contingency that is not recognized until realized (ASC 450-30-25-1).
Official guidance: FASB Accounting Standards Codification
When some amount within the range appears to be a better estimate than any other, accrue that amount. When no amount is a better estimate, accrue the minimum of the range per ASC 450-20-30-1.
Accrue the best estimate of the probable loss and charge it to income (ASC 450-20-30-1). Accrue the minimum amount in the range and disclose the reasonably possible exposure above it (ASC 450-20-30-1; ASC 450-20-50-2).
Official guidance: FASB Accounting Standards Codification
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