A Roadmap to Accounting for Contingencies and Loss Recoveries

A Roadmap to Accounting for Contingencies and Loss Recoveries

2019

The FASB Accounting Standards Codification? material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission.

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Acknowledgments

Susan Fennedy and Dennis Howell supervised the overall preparation of this Roadmap and extend their appreciation to Kelsey Barclay, whose significant contributions made the inaugural edition of this Roadmap possible. They would also like to acknowledge the members of our production group for their contributions -- especially Michael Lorenzo, the production group leader; Peter McLaughlin, who made the "accountingspeak" understandable; Sandy Cluzet and Geri Driscoll, who copyedited the document; and Teri Asarito, David Frangione, and Lora Spickler-Alot, who designed the Roadmap's layout and graphics. They also wish to thank Deloitte Audit & Assurance Services professionals Laxmi Pabbaraju and Inderjeet Singh for their high-quality research and drafting; and Deloitte's U.S. Audit Services, particularly Meredith Lincoln.

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Contents

Prefaceviii

Contactsix

Chapter 1 -- Overview

1

1.1Introduction

1

1.2History of Contingencies Guidance

1

Chapter 2 -- Loss Contingencies and Commitments

4

2.1Overview

4

2.1.1Relationship Between Recognized Loss Contingencies and Reserves

4

2.2Loss Contingency Scope

5

2.2.1Firmly Committed Executory Contracts

8

2.2.2Application of ASC 450 to Employee Benefit Arrangements

9

2.2.3Collectibility of Receivables

10

2.2.3.1Before the Adoption of ASU 2016-13

10

2.2.3.2After the Adoption of ASU 2016-13

10

2.2.4Differentiating Between Contingent Liabilities and Contractual or Legal Liabilities

11

2.2.5Elements of a Litigation Settlement

15

2.2.6Incurrence of a Future Cost of Doing Business

17

2.2.6.1Income Statement Classification for Settlements With Customers and Vendors

18

2.3Recognition

19

2.3.1Assessing the Probability of Whether a Loss Has Been Incurred

20

2.3.1.1"Probable," "Reasonably Possible," and "Remote"

20

2.3.1.2Occurrence of a Business Combination or Successful Completion of an IPO

22

2.3.1.3Proposed Legislation

22

2.3.1.4Assessing Whether a Loss Is Reasonably Estimable

23

2.3.1.5General Reserves and Risk of Loss From Future Events

24

2.3.2Other Recognition Considerations

24

2.3.2.1Unasserted Claims

24

2.3.2.2Loss Recognition Before the Occurrence of a Casualty Event for an Insurance

Company

25

2.3.2.3Litigation, Claims, and Assessments

26

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