Issued by the Committee on Accounting Procedure American Institute of Certified Public Accountants 270 Madison Avenue, New York 16, N. Y.
October, 1958 No. 50
1. In the preparation of financial statements presenting financial position or operating results, or both, it is necessary to give considera-tion to contingencies. In accounting a contingency is an existing con-dition, situation or set of circumstances, involving a considerable de-gree of uncertainty, which may, through a related future event, result in the acquisition or loss of an asset, or the incurrence or avoidance of a liability, usually with the concurrence of a gain or loss. A commit-ment which is not dependent upon some significant intervening factor or decision should not be described as a contingency.
2. The contingencies with which this bulletin is primarily con-cerned are those in which the outcome is not sufficiently predictable to permit recording in the accounts, but in which there is a reasonable possibility of an outcome which might materially affect financial posi-tion or results of operations. Examples of contingencies which may result in the incurrence of liabilities, or in losses, are pending or threat-ened litigation, assessments or possible assessments of additional taxes, or other claims such as renegotiation refunds, that are being or would be contested, guarantees of indebtedness of others, and agreements to repurchase receivables which have been sold. Examples of contingen-cies which may result in the acquisition of assets, or in gains, are claims against others for patent infringement, price redetermination upward and claims for reimbursement under condemnation proceed-ings. Material contingencies of the types discussed in this paragraph should be disclosed.