FASB: Status of Statement 5

Statement of Financial Accounting Standards No. 5 FAS5 Status Page FAS5 Summary Accounting for Contingencies March 1975 Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P.O. BOX 5116, NORWALK, CONNECTICUT 06856-5116 Copyright © 1975 by Financial Accounting Standards Board. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Standards Board. Page 2 Statement of Financial Accounting Standards No. 5 Accounting For Contingencies March 1975 CONTENTS Paragraph Numbers Introduction ................................................................................................................ 1– 7 Standards of Financial Accounting and Reporting: Accrual of Loss Contingencies................................................................................... 8 Disclosure of Loss

Contingencies ....................................................................... 9– 13 General or Unspecified Business Risks.................................................................... 14 Appropriation of Retained Earnings......................................................................... 15 Examples of Application of this Statement.............................................................. 16 Gain Contingencies .................................................................................................. 17 Other Disclosures .............................................................................................. 18– 19 Effective Date and Transition................................................................................... 20 Appendix A: Examples of Application of this Statement...................................... 21– 45 Appendix B: Background Information................................................................... 46– 54 Appendix C: Basis for Conclusions ...................................................................... 55–104 Page 3 Copyright © 1975, Financial Accounting Standards Board Not for redistribution FAS 5: Accounting for Contingencies INTRODUCTION 1. For the purpose of this Statement, a contingency is defined as an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (hereinafter a "gain contingency") or loss 1 (hereinafter a "loss contingency") to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. Resolution of the uncertainty may confirm the acquisition of an asset or the reduction of a liability or the loss or impairment of an asset or the incurrence of a liability. 2. Not all uncertainties inherent in the accounting process give rise to contingencies as that term is used in this Statement. Estimates are required in financial statements for many on-going and recurring activities of an enterprise. The mere fact that an estimate is involved does not of itself constitute the type of uncertainty referred to in the definition in paragraph 1. For example, the fact that estimates are used to allocate the known cost of a depreciable asset over the period of use by an enterprise does not make depreciation a contingency; the eventual expiration of the utility of the asset is not uncertain. Thus, depreciation of assets is not a contingency as defined in paragraph 1, nor are such matters as recurring repairs, maintenance, and overhauls, which interrelate with depreciation. Also, amounts owed for services received, such as advertising and utilities, are not contingencies even though the accrued amounts may have been estimated; there is nothing uncertain about the fact that those obligations have been incurred. 3. When a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. This Statement uses the terms probable, reasonably possible, and remote to identify three areas within that range, as follows: a. Probable. The future event or events are likely to occur. b. Reasonably possible. The...

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