# ASC 275-10-05: Risks and Uncertainties — Overall — 05 Overview and Background Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/275/10/#05-overview-and-background) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:f2e4f28bd235f22a7cd1b48c191c6e19eddfc4db45abdfc6dffeb71e066d3096 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 275-10-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/275/10/#05-overview-and-background) SEC content: no ##### [275-10-05-1](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:9de29fa776874a3419669f5eff541b3e775b72f69ed22ad2e82644223a08d83c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Financial statements provide information about certain current conditions and trends that help users in predicting reporting entities' future cash flows and results of operations. The quality of users' predictions depends to a significant degree on their assessment of the risks and uncertainties inherent in entities' operations and of the information about those operations that financial reporting provides. ##### [275-10-05-2](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:39114595033e7cb81e272abbc4545a045c50365fba2b15454042114dee6d8145 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The central feature of this Subtopic's disclosure requirements is selectivity: specified criteria serve to screen the host of risks and uncertainties that affect every entity so that required disclosures are limited to matters significant to a particular entity. The disclosures focus primarily on risks and uncertainties that could significantly affect the amounts reported in the financial statements in the [near term](https://asc.understandingaccounting.org/glossary/n/#near-term "A period of time not to exceed one year from the date of the financial statements.") or the near-term functioning of the reporting entity. The risks and uncertainties this Subtopic addresses can stem from any of the following: 1. a The nature of the entity's operations, including the activities in which the entity is currently engaged if principal operations have not commenced 2. b The use of estimates in the preparation of the entity's financial statements 3. c Significant concentrations in certain aspects of the entity's operations. ##### [275-10-05-3](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:c811b5fb2f12a0e1379c1644019cf921ff9941e033c0a6b1da2c87156eec6191 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not prohibit disclosure of matters it does not require to be disclosed either because they do not meet the specified screening criteria or because they relate to risks and uncertainties that are outside the scope of this Subtopic. #### Nature of Operations ##### [275-10-05-4](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:d428de789b7e0e039832da68294feea7110b03cfe53cfc3dd1a8c8b727173deb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Disclosure of the locations of a business entity's or not-for-profit entity's (NFP's) principal markets provides information useful in assessing risks and uncertainties related to the environments in which the entity operates. The risks and the uncertainties associated with selling products and services in various regions in the United States may differ significantly. And they do differ significantly from the risks and the uncertainties in selling products and services outside the United States. Knowing those environments in which an entity sells its products or provides services helps users of financial statements to assess certain risks based on day-to-day national and world events. ##### [275-10-05-5](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:ae042b769a1a5369838b2b537fd5feb6f422cefd58ca50d0822a939749bf4561 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Information about the nature of operations is helpful because the various kinds of businesses in which reporting entities operate have diverse degrees and kinds of risks. Certain of these risks are inherent to the business in which an entity is engaged. By knowing the nature of an entity's business and the principal markets for its products or services, a financial statement user is alerted, indirectly, about the risks common to that business. #### Use of Estimates in the Preparation of Financial Statements ##### [275-10-05-6](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:27cd1a63d99e3af787e6ee6a3e73ca4837b0264b9841d90547ef0ae07de223f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is a need to communicate explicitly to users of financial reports that the inescapable use of estimates in the preparation of financial information, including the estimation of [fair values](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") for assets carried at such a basis, results in the reporting of values that are approximations rather than exact amounts. If users understand better the inherent limitations on precision in financial statements, they will be better able to make decisions. ##### [275-10-05-7](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:5e669d1ec2c6e2b8438fc62daa56305a8cb4e9dd402eb8e96b0b542ca72fbfd9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Estimates inherent in the current financial reporting process inevitably involve assumptions about future events. For example, estimating and constraining estimates of variable consideration to be included in the [transaction price](https://asc.understandingaccounting.org/glossary/t/#transaction-price "The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.") for a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with a [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.") in accordance with paragraphs [606-10-32-5 through 32-14](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-5) and measuring progress toward complete satisfaction of a [performance obligation](https://asc.understandingaccounting.org/glossary/p/#performance-obligation "A promise in a contract with a customer to transfer to the customer either: A good or service (or a bundle of goods or services) that is distinct A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.") in accordance with paragraphs [606-10-25-31 through 25-37](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-31) . For another example, carrying inventories measured using first-in, first-out (FIFO) at the lower of cost and [net realizable value](https://asc.understandingaccounting.org/glossary/n/#net-realizable-value "Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.") is based on an assumption that there will be sufficient demand for that product in the future to be able to sell the quantity on hand without incurring losses on the sales or, if net realizable value is used, that it can be estimated. Making reliable estimates for those matters is often difficult even in periods of economic stability; it is more so in periods of economic volatility. Although many users of financial statements are aware of that aspect of financial reporting, others often assume an unwarranted degree of reliability in financial statements. The disclosure required by this Subtopic should help dispel any of those erroneous assumptions. #### Current Vulnerability Due to Certain Concentrations ##### [275-10-05-8](https://asc.understandingaccounting.org/asc/275/10/#275-10-05-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:21:58.399Z to 2026-09-09T23:21:58.399Z Record version: sha256:675a12bb7ae5dedecf3c7a5808baafd7e2ee07502520da028e7874148ef47c06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on disclosure of current vulnerability due to certain concentrations but stops short of requiring disclosure of all concentrations.