SSAP 5: (NAIC) Liab, Contingencies, & Impairment of Assets Flashcards
3 components of liabilities:
- present responsibility to transfer/ use assets at a specified/ determinable date based on the occurrence of a specified event/ on demand
- The entity has little/ no discretion to avoid the responsibility
- The transaction/ event that obligates the entity has already occurred
Define “loss contingency”/ “asset impairment”:
An existing condition involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur
2 necessary criteria to charge a loss contingency/ asset impairment to operations:
- Information prior to the issuance of the financial statements indicates that the assets has been impaired/ liability incurred at the date of the financial statements
- The amount of the loss can be reasonably estimated
How should management book the reserve if there is a range:
- if a particular amount within the range appears to be a better estimate, that amount should be booked
- if no amount in the range appears to be better than the others, the midpoint should be booked
How should management book the reserve if there is no range:
The best estimate should be booked
Criteria to make a disclosure about loss contingency/ asset impairment:
- a contingency/ asset impairment is not recorded because only one of the two conditions is met
- there is an exposure to loss higher than the amount accrued
2 disclosures that need to be made regarding loss contingency/ asset impairment:
- nature of the contingency
2. estimate of the possible loss/ range of loss; or a statement that such an estimate can not be made
Disclosures that need to be made for each joint & several liability arrangement:
- Nature of the agreement
- Total outstanding amount under the arrangement
- Carrying amount of the insurers liability, and carrying amount of the receivable recognized
- Nature of any recourse provisions that would enable recovery from other entities of the amounts paid, including any limitations on the amounts that may be recovered
- In the period where the liability was initially recognized & measured, or the period in which the measurement changes significantly: the corresponding entry/ where the entry was recorded in the financials