ASC

ASC 275-912

Contractors—Federal Government

275 Risks and Uncertainties

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In brief

IntermediateDisclosureContingencies and guaranteesIndustry-specificPresentation

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.

Key points (7)
  • Effect may be given to the parts of a termination claim determinable with reasonable certainty, with note disclosure of the status of the remainder when a reasonable estimate cannot be made in time (275-912-50-2).
  • Claim items of a known controversial nature shall be stated at the amount estimated to be collectible; parts too uncertain to be reasonably estimated are preferably not given effect, and if material, the circumstances shall be disclosed before the uncertainty is removed (275-912-50-3).
  • In extreme circumstances involving undeterminable claims, consideration shall be given to delaying issuance of the financial statements until necessary data are available (275-912-50-3).
  • A contract termination is reflected in the period it occurs, or earlier if it is a subsequent event before issuance attributable to conditions existing at the balance sheet date; the effective date of termination is when the contractor acquires the right to receive payment on the terminated portion (275-912-50-4).
  • If information is insufficient to predict the effect of a very recent termination, the best available information shall be disclosed in the notes in conformity with Topic 450 (275-912-50-4).
  • Significant items of a known controversial nature shall be disclosed in the notes even if ultimate amounts realizable are not determinable (275-912-50-5).
  • If indicators (notice of possible termination, performance problems, procurement cutbacks) suggest a termination that would materially affect operations, the circumstances and potential effects shall be disclosed in the notes (275-912-50-6).

For students. Exam traps here are timing and measurement: the termination is recognized when the contractor acquires the right to payment (or earlier as a Type I subsequent event), and only reasonably estimable amounts are recorded — uncertain or controversial elements get disclosed, not accrued. Students often forget that mere indicators of a possible termination (not just an actual one) trigger disclosure if the effect would be material.

termination for conveniencetermination claimgovernment contractor riskreasonable estimatesubsequent eventsknown controversial itemsnote disclosure of potential termination

Machine-generated study aid for ASC 275-912. Check the source paragraphs below.

275-912-00Status

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275-912-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
912-275-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
912-275-50-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-275-50-2 Amended Maintenance Update 2016-11 (PDF) 06/27/2016
912-275-50-4 Amended Accounting Standards Update No. 2014-09 05/28/2014

275-912-05Overview and Background

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275-912-05-1
This Subtopic provides guidance to government contractors related to incremental disclosures about risks and uncertainties associated with contracts terminated for the convenience of the government.

275-912-15Scope and Scope Exceptions

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Overall Guidance

275-912-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 912-10-15.

275-912-50Disclosure

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Termination Claims

275-912-50-2
In some circumstances it will be impossible to make a reasonable estimate of a termination claim in time for inclusion in the financial statements of the period in which the termination occurs. Effect may then be given in the statements to those parts of the termination claim that are determinable with reasonable certainty and disclosure made, by note or otherwise, of the status of the remainder.
275-912-50-3
If the contractor's claim includes items of known controversial nature it shall be stated at the amount estimated to be collectible. If a particular termination claim or part thereof is so uncertain in amount that it cannot be reasonably estimated, it is preferable not to give effect to that part of the claim in the financial statements. If the total of such undeterminable elements is material, the circumstances shall be disclosed in statements issued or available to be issued (as discussed in Section 855-10-25) before the removal of the uncertainty. In an extreme circumstance involving undeterminable claims, consideration shall be given to delaying the issuance of financial statements until necessary data are available.
275-912-50-4
The effect of a contract termination shall be reflected in the financial statements of the contractor in the period in which the termination occurs, or earlier if the termination is a subsequent event occurring before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) and attributable to conditions that existed at the date of the balance sheet. If sufficient information is not available to predict the effect of a very recent termination, then the best information available shall be disclosed in the notes to financial statements in conformity with Topic 450. The effective date of termination shall be the date at which the contractor acquires the right to receive payment on the terminated portion of the contract.
275-912-50-5
Significant items of a known controversial nature also shall be disclosed in the notes to financial statements, although estimates of ultimate amounts to be realized may not be determinable.
275-912-50-6
The government contractor is subject to a degree of risk different from its commercial counterpart because of the unilateral contract right of the government to terminate a contract. If there are indications that a contract termination may occur and the termination would have a material effect on the contractor's operations, disclosure of the circumstances and the potential effects shall be made in the notes to financial statements. Indicators of a potential contract termination include notice of a possible termination, contract performance problems, procurement cutbacks, and so forth.
275-912-50-7
Paragraph 420-10-50-1 provides guidance on information about contract terminations to be disclosed in notes to financial statements.

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