Risks and Uncertainties

ASC 275 governs disclosure of risks and uncertainties that exist at the balance sheet date. The general Subtopic (275-10) requires all entities to disclose four things in the basic financial statements — nature of operations (or, if principal operations have not commenced, current activities), the pervasive use of management's estimates, certain significant estimates, and current vulnerability from certain concentrations — but only when screening criteria are met: generally that it is at least reasonably possible a change or severe impact will occur in the near term and the effect would be material or severe (275-10-50-1; 50-8; 50-16). The industry Subtopic (275-912) layers on incremental disclosures for federal government contractors exposed to the government's unilateral right to terminate for convenience, requiring recognition only of the reasonably estimable portions of a termination claim with the remainder disclosed. The core idea is selectivity: ASC 275 is a disclosure-only standard that does not change recognition or measurement, and it expressly excludes risks such as management/key personnel, proposed regulatory or accounting changes, internal control weaknesses, and acts of God or war (275-10-15-4).

Subtopics

1. 10Overall74 ¶

   ASC 275-10 requires all entities to disclose, in the basic financial statements, information about risks and uncertainties existing at the balance sheet date in four areas: nature of operations (or, if principal operations have not commenced, current activities), the pervasive use of management estimates, certain significant estimates, and current vulnerability due to certain concentrations (275-10-50-1). The hallmark of the Subtopic is selectivity — disclosure is triggered only when specified screening criteria are met, generally when it is at least reasonably possible that a change or severe impact will occur in the near term and the effect would be material or severe (275-10-50-8; 275-10-50-16). It excludes risks from management/key personnel, proposed regulatory or accounting changes, internal control deficiencies, and acts of God, war, or sudden catastrophes (275-10-15-4).

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2. 912Contractors—Federal Government10 ¶

   This Subtopic requires federal government contractors to make incremental disclosures about the risks and uncertainties arising from the government's unilateral right to terminate contracts for its convenience. The effect of a termination is reflected in the period the termination occurs (or earlier if it is a subsequent event attributable to balance-sheet-date conditions), with only the reasonably estimable portions of a termination claim recognized and the remainder disclosed. Controversial or undeterminable claim elements are stated at amounts estimated to be collectible or excluded and disclosed.

   00051550