In October 2020, Deloitte published a new piece of the roadmap accounting series on US GAAP related topics, which discusses the area of accounting for contingencies, loss recoveries and guarantees.
It mainly covers guidance as codified in ASC 4501 on loss contingencies, gain contingencies, and loss recoveries; in addition, the publication contains a chapter on the accounting guidance in ASC 460 on guarantees.
Although there were no major changes in these areas, as they often require significant judgements, interpretations and experience to be applied properly, therefore we believe it will be found valuable to the readers.
The document discusses the concept of this problem, the guidance, examples of how to apply the standards in practice, and also explains and clarifies the terminology relevant for assessment and reaching conclusions. The publication also discusses how to apply the standards before or after the adoption of some related new standards like ASU 2016-13, which implements the current expected credit loss model.
You will find useful a number of examples on the assessment of probability, including how to evaluate various situations of litigations and disputes; the document also discusses areas of warranties, product liabilities and measurement principles (ie. use of “Probability-Based” vs “Expected Value Cash Flow” model). You will find examples of environmental obligations, discounting, gain contingencies, disclosures, as well as guarantees issued in connection with a service contract.
Within the roadmap you will also find a useful summary of key differences between US GAAP and IFRS standards in this area, including the measurement principles used under both GAAPs (minimum value of the range to be used in US GAAP vs the midpoint of the range under IFRS), onerous contracts as defined in IFRS vs respective treatment in US GAAP, the use of discounting as well as differences in the key terminology used that may result in different conclusions, should a different accounting framework be used.
This newly published Roadmap as well as many other practical sources with US GAAP related topics can be found at DART – comprehensive web-based library of Deloitte.