Loss Contingencies
Possible losses from uncertain future events, such as lawsuits, that may require accrual or disclosure.
FAR loves the range-of-loss twist: when a loss is probable and only a range is estimable with no amount more likely than another, accrue the minimum (ASC 450-20), not the midpoint or maximum — the gap up to the high end is disclosed. The classic MCQ gives a $200,000–$500,000 lawsuit range and tests whether you book $200,000 (if a point in the range is the better estimate, accrue that instead). Watch the “tell” in the wording: probable plus can be reasonably estimated triggers accrual (debit loss, credit liability). The carve-out to remember is guarantees of others’ debt, which disclose even when loss is remote (under ASC 460).
The trap is treating a gain contingency symmetrically — you never accrue an expected lawsuit win, only disclose it once realization is assured. Don’t confuse the resulting accrued liability, a real obligation, with the broader balance sheet estimates it sits among. Separate this from subsequent events (ASC 855): a loss confirming a condition that existed at year-end adjusts the statements; one arising after is disclose-only.
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