ASC 450-10
Overall
450 Contingencies
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ASC 450-10 is the Overall subtopic of the Contingencies Topic; it sets the pervasive scope, definitions, and cross-references for gain and loss contingencies addressed in 450-20 and 450-30. A contingency exists when an existing condition, situation, or set of circumstances involves uncertainty that will be resolved by a future event confirming the acquisition of an asset, reduction of a liability, loss or impairment of an asset, or incurrence of a liability (450-10-05-5). Critically, the mere use of an estimate does not create a contingency (450-10-05-6), and the Topic does not apply to recognition and initial measurement of contingency-related assets and liabilities measured at fair value in a business combination, NFP acquisition, or joint venture formation (450-10-15-2A).
Key points (7)
- Resolution of the uncertainty must confirm one of four outcomes: acquisition of an asset, reduction of a liability, loss or impairment of an asset, or incurrence of a liability (450-10-05-5).
- Not all uncertainty is a contingency — the fact that an estimate is involved does not itself create a loss or gain contingency (450-10-05-6).
- The Contingencies Topic applies to all entities (450-10-15-2), but excludes recognition and initial measurement of assets and liabilities arising from contingencies measured at fair value (and assets measured at other than fair value) on the acquisition date under Subtopic 805-20, 958-805, or on the formation date under 805-60 (450-10-15-2A).
- Depreciation, and related recurring repairs, maintenance, and overhauls, are not contingencies because expiration of the asset's utility is not uncertain (450-10-55-2).
- Accrued amounts owed for services already received, such as advertising and utilities, are not contingencies even if estimated, because the obligation has definitely been incurred (450-10-55-3).
- The possibility of a future change in the tax law is not an uncertainty within the meaning of the Topic (450-10-55-4).
- ASC 450 is not all-inclusive; Topic-specific contingency guidance exists elsewhere (e.g., uncertainty in income taxes at 740-10-25, variable consideration at 606-10-32-5 through 32-14, variable lease payments at 842-20-55-1 through 55-2, insurance contracts at 944-40).
For students. This is the gatekeeping subtopic: before applying the probable/reasonably possible/remote framework of 450-20, you must first confirm you actually have a contingency. The classic error is treating any estimated accrual (depreciation, accrued utilities, warranty-like estimates of known obligations) as a contingency, when the defining feature is uncertainty about whether an asset or liability exists at all, resolvable only by a future event.
loss contingencygain contingencyexisting condition involving uncertaintyestimates versus contingenciesscope exception for business combinationsfuture confirming eventdisclosure of uncertainties
Machine-generated study aid for ASC 450-10. Check the source paragraphs below.
450-10-00Status
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450-10-00-1
The following table identifies the changes made to this Subtopic.
450-10-05Overview and Background
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450-10-05-1
The Contingencies Topic includes the following Subtopics:
- aOverall
- bLoss Contingencies
- cGain Contingencies.
450-10-05-2
This Subtopic, in combination with Subtopics 450-20 and 450-30, provides general guidance regarding gain and loss contingencies. Other Topics include gain or loss contingencies related to those specific Topics. Therefore, the Contingencies Topic does not include all standards related to contingencies. While not intended to be all-inclusive, the following Relationships Sections within the Contingency Subtopics provide links to many Topic-specific contingencies:
- aSee Section 450-10-60 for references to other standards related to uncertainties that could result in either a gain or a loss.
- bSee Section 450-20-60 for references to other standards related to uncertainties that could result in a future loss.
- cSee Section 450-30-60 for references to other standards related to uncertainties that could result in a future gain.
450-10-05-4
The Contingencies Topic establishes standards of financial accounting and reporting for loss contingencies and gain contingencies, including standards for disclosures.
450-10-05-5
Resolution of the uncertainty may confirm any of the following:
- aThe acquisition of an asset
- bThe reduction of a liability
- cThe loss or impairment of an asset
- dThe incurrence of a liability.
450-10-05-6
Not all uncertainties inherent in the accounting process give rise to contingencies. Estimates are required in financial statements for many ongoing and recurring activities of an entity. The mere fact that an estimate is involved does not of itself constitute the type of uncertainty referred to in the definition of a loss contingency or a gain contingency. Several examples of situations that are not contingencies are included in Section 450-10-55.
450-10-15Scope and Scope Exceptions
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Overall Guidance
450-10-15-1
The Scope Section of the Overall Subtopic establishes the pervasive scope for all Subtopics of the Contingencies Topic. Unless explicitly addressed within specific Subtopics, the following scope guidance applies to all Subtopics of the Contingencies Topic.
Entities
450-10-15-2
The guidance in the Contingencies Topic applies to all entities.
Transactions
450-10-15-2A
The guidance in the Contingencies Topic does not apply to the recognition and initial measurement of assets or liabilities arising from contingencies that are measured at fair value or assets arising from contingencies measured at an amount other than fair value on the acquisition date in a business combination under the requirements of Subtopic 805-20, on the acquisition date in an acquisition by a not-for-profit entity under the requirements of Subtopic 958-805, or on the formation date in a joint venture formation under the requirements of Subtopic 805-60. Those Subtopics provide the recognition and initial measurement requirements for assets and liabilities arising from contingencies measured at fair value and for assets arising from contingencies measured at an amount other than fair value as part of a business combination, an acquisition by a not-for-profit entity, or a joint venture formation.
Other Considerations
450-10-15-3
In some cases, there may be uncertainty about whether a situation is a contingency. Section 450-10-55 includes several situations that are not contingencies, and thus are outside the scope of the Contingencies Topic.
450-10-55Implementation Guidance and Illustrations
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Implementation Guidance
450-10-55-1
This Section includes several situations that do not meet the definition of a contingency, and thus are outside the scope of this Topic.
450-10-55-2
The fact that estimates are used to allocate the known cost of a depreciable asset over the period of use by an entity does not make depreciation a contingency; the eventual expiration of the utility of the asset is not uncertain. Thus, depreciation of assets is not a contingency, nor are such matters as recurring repairs, maintenance, and overhauls, which interrelate with depreciation. This Topic is not intended to alter present depreciation practices as described in Section 360-10-35.
450-10-55-3
Amounts owed for services received, such as advertising and utilities, are not contingencies even though the accrued amounts may have been estimated; there is nothing uncertain about the fact that those obligations have been incurred.
450-10-55-4
The possibility of a change in the tax law in some future year is not an uncertainty.
450-10-60Relationships
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Interim Reporting
450-10-60-1
For contingencies and other uncertainties that could be expected to affect the fairness of presentation of financial data at an interim date, see paragraph 270-10-50-6.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For contingencies and other uncertainties that could be expected to affect the fairness of presentation of financial data at an interim date, see paragraph 270-10-50-69.Other Assets and Deferred Costs
450-10-60-2
For contingencies associated with insurance and reinsurance contracts that do not transfer insurance risk, see Section 340-30.
Revenue Recognition
450-10-60-3
See the guidance on estimating and constraining estimates of variable consideration (for example, a sale with a right of return) in paragraphs included in the transaction price for contracts with customers.
450-10-60-4
For cases in which a nonmonetary asset is destroyed or damaged (that is, an involuntary conversion) and the amount of monetary assets to be received is uncertain, see paragraph 610-30-25-4.
Other Expenses
450-10-60-5
For accounting by an insured entity for the contingencies associated with a multiple-year retrospectively rated insurance contract accounted for as insurance, see the Multiple-Year Retrospectively Rated Contracts Subsections of Subtopic 720-20.
Income Taxes
450-10-60-6
For accounting for uncertainty in income taxes, see Section 740-10-25.
Business Combinations
450-10-60-7
For recognition of contingent obligations for contractual termination benefits and curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination, see paragraphs .
Leases
450-10-60-8
For variable lease payments, see paragraphs .
Financial Services—Insurance
450-10-60-9
For contingencies that arise when an insurance entity or a reinsurance entity issues an insurance contract, see Subtopic 944-40.
450-10-60-10
For contingencies associated with a reinsurance contract between insurance entities (including retrocession), see Section 944-20-15.
450-10-60-11
For contingencies associated with multiple-year retrospectively rated contracts, see Subtopic 944-20.