2.2 Contingencies | DART – Deloitte Accounting Research Tool

IFRS Accounting Standards and U.S. GAAP include similar fundamental concepts regarding the accounting for contingencies in that both frameworks require the recognition of a loss contingency on the basis of the probability of occurrence. However, a difference exists between the two sets of standards in the interpretation of the word “probable,” which could lead to a difference in when entities record loss contingencies. In addition, the measurement of a loss contingency may vary under IFRS Accounting Standards and U.S. GAAP given that each framework uses a different reference point in the evaluation of a range of possible outcomes.

The table below further outlines the differences between IFRS Accounting Standards and U.S. GAAP regarding the accounting for contingencies.

Topic	IFRS Accounting Standards (IAS 37)	U.S. GAAP (ASC 450, ASC 410, ASC 420)
Terminology	The three categories of contingencies are: Provision is an accrued liability or loss contingency recognized in the financial statements. Contingent liability is a loss contingency that does not meet the criteria to be recognized in the financial statements. Contingent asset is a concept similar to a contingent gain under U.S. GAAP.	The three categories of contingencies are: Estimated loss accrued for a loss contingency (i.e., a contingent loss that is recognized as a liability). Loss contingency that is not recognized as a liability (e.g., when a loss contingency cannot be reasonably estimated). Gain contingency.
Terminology	U.S. GAAP and IFRS Accounting Standards use different terminology to describe contingencies. Under U.S. GAAP, this terminology is related to financial statements’ elements of performance (two key terms are “gain contingency” and “loss contingency”), whereas under IFRS Accounting Standards, the terminology used is related to financial statements’ elements of financial position (the three key terms are “contingent asset,” “contingent liability,” and “provision”). However, the two sets of terms may be applied similarly so that no difference between them arises in practice.
Recognition of loss contingencies/provisions	One of the conditions for recognizing a provision (as a liability) is that it must be probable that an outflow of resources will be required to settle the obligation. “Probable” is defined as “more likely than not” (i.e., greater than 50 percent). More contingencies may qualify for recognition as liabilities under IFRS Accounting Standards than under U.S. GAAP.	One of the conditions for loss accrual is that it must be probable that (1) an asset has been impaired or (2) a liability has been incurred. “Probable” is defined as “likely to occur” (i.e., generally greater than 70 percent), which is a higher threshold than “more likely than not” (i.e., greater than 50 percent).
Initial measurement — range of estimates	When there is a range of possible outcomes and each point is as likely as the other points, the midpoint of the range should be used for initial measurement.	An entity should reference applicable U.S. GAAP for specific obligations (e.g., asset retirement, environmental, restructuring) as necessary to determine measurement. When there is a range of possible outcomes and each point is as likely as the other points, the minimum amount in the range is used to measure the contingency.
Discounting	The loss contingency should be the present value of the cost required to settle the obligation, discounted by using a pretax discount rate that reflects both (1) the time value of money and (2) the risks specific to the liability. Discounting is required even if the timing of the outflows is not fixed or determinable.	In general, there is no requirement to discount loss contingencies. However, for certain obligations for which the timing and amounts of outflows are fixed or reliably determinable (e.g., asset retirement obligations), a risk-adjusted rate is used to discount the obligation.