Disclosure of Contingencies GASB 62, paragraphs 96–113, defines and provides further guidance on contingencies. Disclose a loss contingency arising from a claim when it is reasonably possible a loss will eventually be incurred and the loss is either not probable or not subject to reasonable estimation.

What are tax contingencies?

Those tax contingencies (or tax reserves) are estimates of additional taxes the company may be required to pay in the future (Graham, Raedy, & Shackelford, 2012).

What are contingencies and commitments?

In accounting and finance, Commitments and Contingencies can be defined as follows: A commitment is a promise made by a company to external stakeholders. On the other hand, a contingency is an obligation of a company, which is dependent on the occurrence or non-occurrence of a future event.

What are Commitments and contingencies?

Commitments are the obligation to the external parties of the company which arises with respect to any legal contract made by the company with those external parties whereas the contingencies are the obligations of the company whose occurrence is dependent on the outcome of a specific future events.

How are contingencies reported on a financial statement?

Gain contingencies, or possible occurrences of a gain on a claim or obligation involving the entity, are reported when realized (earned). If a specific event that can cause the gain occurs, and the gain is realized, then the gain is accrued for and reported in the financial statements.

How is a company prepared for a contingency?

Contingencies can be prepared for, but often the nature and scope of such negative events are unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures.

When does a contingency need to be disclosed?

In a scenario where the amount of the contingency is available or can be estimated, the amount must be disclosed as well. A provision must be made if it is more likely than not (>50%) that the loss or obligation will be recognized and the amount can be estimated. Contingencies and how they are recorded depends on the nature of such contingencies.

How are commitments and contingencies recorded on a balance sheet?

, commitments are recorded when they occur, while contingencies (should they relate to a liability or future fund outflow) are at a minimum disclosed in the notes to the Statement of Financial Position (Balance Sheet) in the financial statements of a business.