ASC 450 loss contingencies

Every company faces claims it may or may not lose. ASC 450 decides which of them reach the balance sheet and which appear only in the notes, using three words: probable, reasonably possible and remote. This guide explains those thresholds, when and how much to accrue, works through a lawsuit with a range of outcomes, and covers the disclosures, unasserted claims, gain contingencies and recoveries, and the differences from IAS 37.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 4 minute read.

Short answer

ASC 450 Contingencies sets the US GAAP rules for uncertain losses and gains whose outcome depends on future events, such as lawsuits, claims, guarantees and environmental matters. A loss contingency is accrued when it is probable, meaning likely to occur, that a liability had been incurred or an asset impaired at the balance sheet date, and the amount can be reasonably estimated. If the best estimate is a range and no amount in it is better than another, the minimum of the range is accrued. A loss that is only reasonably possible, more than remote but less than likely, is not accrued but is disclosed with an estimate of the possible loss or range, or a statement that one cannot be made. Remote losses are generally not disclosed, except for certain guarantees. Gain contingencies are not recognized until realized. Unlike IAS 37, which uses more likely than not and the midpoint of a range, ASC 450 sets a higher bar for probable and accrues the low end. In this guide's example, a lawsuit with a range of $2 million to $5 million leads to an accrual of $2 million.

At a glance

Accrue when
Probable and estimable
Probable means
Likely to occur
Range of loss
Accrue the minimum
Reasonably possible
Disclose only
Gains
Not until realized
IFRS
IAS 37, lower threshold
ASC 450 loss contingenciesAccrue when: Probable and estimable; Probable means: Likely to occur; Range of loss: Accrue the minimum; Reasonably possible: Disclose only; Gains: Not until realized; IFRS: IAS 37, lower threshold.KEY FACTS AT A GLANCEASC 450 loss contingenciesAccrue whenProbable and estimableProbable meansLikely to occurRange of lossAccrue the minimumReasonably possibleDisclose onlyGainsNot until realizedIFRSIAS 37, lower thresholdTax BakersASC 450 loss contingenciesAccrue when: Probable and estimable; Probable means: Likely to occur; Range of loss: Accrue the minimum; Reasonably possible: Disclose only; Gains: Not until realized; IFRS: IAS 37, lower threshold.KEY FACTS AT A GLANCEASC 450 loss contingenciesAccrue whenProbable and estimableProbable meansLikely to occurRange of lossAccrue the minimumReasonably possibleDisclose onlyGainsNot until realizedIFRSIAS 37, lower thresholdTax Bakers
Key facts at a glance, as set out in this guide.

What is a loss contingency under ASC 450?

An existing condition, situation or set of circumstances involving uncertainty about a possible loss that will be resolved when one or more future events occur or fail to occur. Pending or threatened litigation, product warranties and defects, guarantees of others' debts, environmental remediation and tax disputes are typical. Some have their own topics, such as guarantees in ASC 460, asset retirement obligations in ASC 410 and uncertain income tax positions in ASC 740. See uncertain tax positions under ASC 740.

How likely must a loss be before it is recorded?

ASC 450: accrue, disclose or neitherASC 450: accrue, disclose or neitherProbableReasonably possibleRemoteWhat it meansLikely to occurMore than remote,less than likelySlight chanceAmount can beestimatedAccrue the lossand discloseDisclose thepossible lossNo disclosure,except guaranteesAmount cannotbe estimatedDisclose; say noestimate is possibleDisclose; say noestimate is possibleNo disclosure
Only a probable, estimable loss reaches the balance sheet.

The judgment is made on information available before the financial statements are issued, about conditions that existed at the balance sheet date. A loss is accrued only if both conditions are met: it is probable that a liability was incurred or an asset impaired at that date, and the amount can be reasonably estimated. Losses from events after the balance sheet date are disclosed rather than accrued. See ASC 855 subsequent events.

How is the amount of a loss contingency measured?

  • Best estimate: if one amount within a range is a better estimate than any other, it is accrued.
  • The minimum: if no amount in the range of loss is a better estimate, the low end is accrued, and the reasonably possible excess is disclosed.
  • No discounting, as a rule: contingencies are discounted only when the amount and timing of the payments are fixed or reliably determinable.
  • Legal costs: companies choose a policy of accruing expected legal fees with the contingency or expensing them as incurred, and apply it consistently.

ASC 450 in practice: a lawsuit with a range of outcomes

A customer sues a company over a product failure that happened in 2026. At December 31, 2026, counsel considers an unfavorable outcome probable and estimates the loss at between $2 million and $5 million, with no amount in the range more likely than another. A separate claim, for $1.5 million, is judged reasonably possible.

$ millionLawsuitSecond claim
LikelihoodProbableReasonably possible
Accrued liability under ASC 4502.00
Disclosed: further reasonably possible lossup to 3.01.5
Provision if the company reported under IAS 373.50

The company records a loss of $2 million and a liability, and discloses the nature of the lawsuit and that a further loss of up to $3 million is reasonably possible. The second claim is disclosed with its estimate but not accrued. Under IAS 37 the first claim would be measured at the midpoint, $3.5 million, because each point in the range is equally likely. See IAS 37 vs ASC 450 and product liability provisions.

What must be disclosed about loss contingencies?

  • The nature of an accrued contingency and, if needed to avoid misleading readers, the amount accrued.
  • For a reasonably possible loss, or a reasonably possible loss above the amount accrued: its nature and an estimate of the possible loss or range, or a statement that no estimate can be made.
  • Unasserted claims, those not yet made: disclosed only if a claim is probable of being asserted and an unfavorable outcome is reasonably possible.
  • Guarantees under ASC 460, even when the chance of payment is remote.

The SEC staff often asks companies to update disclosures as matters develop, so that a large accrual does not appear without earlier warning in the notes.

How are gain contingencies and recoveries treated?

A gain contingency, such as a lawsuit the company expects to win, is not recognized until it is realized or realizable, and is disclosed carefully to avoid misleading implications. An insurance recovery for a recognized loss is a different matter: it is recognized as an asset when its receipt is probable, up to the amount of the loss recognized.

How does ASC 450 compare with IAS 37?

IAS 37 recognizes a provision when an outflow is probable, meaning more likely than not, a lower threshold than ASC 450's likely to occur. It measures a single obligation at its most likely outcome, or the midpoint of a range where every point is equally likely, and discounts when the effect is material. IAS 37 also calls disclosed items contingent liabilities, uses the term provision for recognized ones, and requires provisions for onerous contracts. See IAS 37 provisions explained and IFRS vs US GAAP key differences.

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Questions people ask

When is a loss contingency accrued under ASC 450?

When it is probable that a liability had been incurred or an asset impaired at the balance sheet date and the amount of loss can be reasonably estimated.

What does probable mean in ASC 450?

Likely to occur, a higher threshold than IAS 37's more likely than not. Reasonably possible means more than remote but less than likely, and remote means slight.

What is accrued when a loss is a range under ASC 450?

The best estimate within the range or, if no amount is better than another, the minimum of the range, with the reasonably possible excess disclosed.

Are gain contingencies recognized under US GAAP?

No. Gain contingencies are not recognized until realized or realizable, though insurance recoveries of recognized losses are recognized when probable.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 450, Contingencies
  2. Financial Accounting Standards Board
  3. Deloitte DART: Contingencies roadmap, measurement of loss contingencies
  4. Deloitte DART: Contingencies roadmap, disclosures

Rules and fees change. If you are reading this long after October 21, 2026, confirm the figures with the source before you rely on them.

IFRS vs US GAAPIAS 37 vs ASC 450: provisions and contingenciesASC 855ASC 855 subsequent eventsIAS 37IAS 37 provisions explained

More in ASC 450

TopicThe ASC 450 topic page

This guide is general information. It is not tax or legal advice for your situation.