Review the requirements in the Accounting Standards Codification (ASC) that address accounting for contingencies. Describe the three ranges of loss contingencies outlined in accounting standards and summarize briefly the accounting and disclosure requirements for each of the three ranges.

Question

What will be an ideal response?

Answer 1

ASC 450, "Contingencies" describes these three ranges of loss contingencies, which range from
probable to remote:
Probable – The future event or events are likely to occur.
Reasonably possible – The chance of the future event or events occurring is more than remote, but less
than likely.
Remote – The chance of the future event or events occurring is slight.
ASC 450 also notes that accounting standards require that an estimated loss from a loss contingency
must be accrued by a charge to income if both of the following conditions are met:
a. Information available prior to the issuance of the financial statements indicates that it is probable that
an asset had been impaired or a liability had been incurred at the date of the financial statements.
b. The amount of the loss can be reasonably estimated.
Disclosure in the footnotes to the financial statements must be made when there is at least a reasonable
possibility that a loss or an additional loss will be incurred. The disclosure shall indicate the nature of
the litigation, progress of the case, how management will respond, likelihood of unfavorable outcome,
and an estimate of the possible range of loss or state that such an estimate cannot be made. No
disclosure is necessary if the likelihood of the loss contingency is assessed as remote.