Accounting for contingencies: 5 things you need to know

Accounting for loss contingencies, or, as some still refer to it, “FAS 5” liabilities, impacts many companies. The principles underlying the accounting serve as the foundation to other areas of GAAP. In this episode we’re going back to the basics and providing a refresher on the contingency model. Pat Durbin joins Heather Horn to help navigate the guidance and answer our questions, including:5:47 - Remote loss contingencies. Pat explains the situations when a loss contingency should neither be accrued nor disclosed. 9:32 - Reasonably possible loss contingencies. In this segment, we turn our attention to circumstances when no accrual is required, but disclosures still need to be made. Pat walks us through the likelihood continuum.13:58 - Probable loss contingencies. Pat discusses when a company is required to accrue a liability and disclose the nature of the contingency. 16:51 - Gain contingencies. After loss contingencies, Pat describes the gain contingency model and highlights differences from the loss contingency model.20:25 - Recovery of a loss. To close out the episode, Pat answers a frequently asked question on how to account for loss contingencies when a company has insurance.About our guestAs the leader of the revenue and liabilities team in PwC's national office, Pat Durbin leads a team of partners and directors responsible for consulting with our clients and engagement teams on complex accounting matters relating to revenue, compensation, income taxes, loss contingencies and several other topics under both US GAAP and IFRS. In addition to client-specific matters, he and his team monitor the activities at the FASB, IASB, and other standard-setting and regulatory bodies (e.g., SEC) and develop the firm's accounting guidance on new and existing GAAP.About our hostHeather Horn is PwC’s National office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters. She is the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series, as well as periodic webcasts for the power and utilities industry. With over 25 years of experience, Heather’s accounting and auditing expertise includes financial instruments and rate-regulated accounting.Transcripts available upon request for individuals who may need a disability-related accommodation. Please send requests to [email protected].