ASC

ASC 450-980

Regulated Operations

450 Contingencies

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In brief

IntermediateContingencies and guaranteesRecognitionIndustry-specific

This subtopic addresses loss contingencies for entities with regulated operations (rate-regulated utilities). Its core rule: when a regulator allows an entity to recover an amount for a contingency in rates even though the amount does not meet the accrual criteria of 450-20-25-2, and the regulator requires the entity to remain accountable for amounts collected but not yet spent for the intended purpose, the increased charges to customers give rise to a liability rather than income.

Key points (5)
  • Scope follows the general regulated-operations scope in Section 980-10-15 (450-980-15-1), i.e., entities whose rates are set by a regulator and are designed to recover specific costs.
  • A regulator may direct inclusion of a contingency amount in allowable costs for rate-making purposes even when the probable-and-reasonably-estimable criteria of 450-20-25-2 are not met (450-980-25-1).
  • Regulatory approval of rate recovery does not itself justify accruing a loss contingency under Subtopic 450-20.
  • If the regulator requires the entity to remain accountable for amounts charged in rates and not yet expended for the intended purpose, the increased charges to customers create a liability (450-980-25-1).
  • That liability is recognized under the regulatory-liability guidance in paragraph 980-405-25-1(b).

For students. Tested point: rate recovery ordered by a regulator is not a substitute for the 450-20-25-2 accrual test — the amount collected is a regulatory liability, not a loss accrual or immediate revenue. Students often wrongly assume regulator-approved cost recovery automatically means the contingency is 'probable' and should be expensed.

loss contingencyrate-regulated operationsallowable costsregulatory liabilityrate-makingaccountability to customersaccrual criteria

Machine-generated study aid for ASC 450-980. Check the source paragraphs below.

450-980-05Overview and Background

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450-980-05-1
This Subtopic provides guidance for contingencies for entities with regulated operations.

450-980-15Scope and Scope Exceptions

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Overall Guidance

450-980-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15.

450-980-25Recognition

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450-980-25-1
Paragraph 450-20-25-2 specifies criteria for recording estimated losses from loss contingencies. A regulator may direct a regulated entity to include an amount for a contingency in allowable costs for rate-making purposes even though the amount does not meet those criteria for recording. If the regulator requires the entity to remain accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose, the resulting increased charges to customers create a liability (see paragraph 980-405-25-1(b)).

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