2.5 Consideration of Inflation

A topic closely related to the discounting of liabilities is the consideration of inflation when liabilities are measured. Contingent liabilities may ultimately be settled many years after the current reporting period. It is appropriate for an entity to consider the impact of inflation when measuring a contingent liability, irrespective of whether the liability qualifies to be discounted and ultimately is discounted, unless it is impracticable for the entity to do so. Although ASC 450-20 does not provide guidance on whether an entity should consider the impact of inflation when measuring a contingent liability, an entity should consider the guidance in ASC 410-20 and ASC 410-30 on asset retirement obligations and environmental obligations, respectively, which may be useful for evaluating whether the impact of inflation should be considered when other types of contingent liabilities are measured. Specifically, ASC 410-20-55-13(b) and ASC 410-30-30-17 require an adjustment for inflation unless it is impracticable. See also Section 3.4 of Deloitte’s Roadmap Environmental Obligations and Asset Retirement Obligations.