Section 3: 25–35%3B

Contingencies and Commitments

Exam insight

Contingencies are a reliable FAR topic, and the questions almost always test the same decision tree: accrue, disclose, or do nothing? The framework under ASC 450 is probable / reasonably possible / remote, and only probable and estimable triggers an accrual. The predictable slips: accruing a 'reasonably possible' loss, accruing a gain (never allowed), or picking the wrong number from a loss range. When a range has no better estimate, you accrue the minimum. Get the framework down and these become easy points.

What AICPA wants you to know

1Apply the three-level probability framework: probable, reasonably possible, remote
2Determine when a loss contingency is accrued vs. disclosed vs. ignored
3Explain the conservative treatment of gain contingencies
4Compute the amount to accrue when a range is given (minimum of the range rule)
5Identify commitments and their disclosure requirements

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

Probable and EstimableProbable and estimable means accrue, reasonably possible means disclose, remote means silence, and gains never accrue.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.