Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 15 – Contingencies and Commitments

Disclosure of Contingencies

The 1998 GASB Codification, Section C50.111, recognizes the requirements of Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies, for the disclosure of loss contingencies. GASB 62, paragraphs 96–113, defines and provides further guidance on contingencies.

Disclose a loss contingency arising from a claim when it is reasonably possible a loss will eventually be incurred and the loss is either not probable or not subject to reasonable estimation. In the disclosure, indicate the nature of the contingency and give an estimate of the possible loss or range of loss. The disclosure must state if a reasonable estimate of the loss cannot be made.

Note: For the purposes of this disclosure, probable means the event is likely to occur and reasonably possible means the event is more than remote but less than likely to occur.

In addition, if the estimate for a loss falls within a range, but only the low end of the range was considered probable and therefore accrued, disclose the range that was not booked.

A disclosure of an unreported loss is not required if there is no demonstration of the loss by a potential claimant. However, if it is considered probable that the claim will be asserted and there is a reasonable possibility that the claimant will prevail, a disclosure of the unreported loss is required.

Examples of such contingencies include:

• Lawsuits pending with the agency
• Arbitrage rebates
• Questioned federal costs
• Environmental liabilities
• Outstanding loan commitments
• Outstanding construction commitments

For lawsuits of $25,000 or more, provide details of cases, including:

• Names of the plaintiff and defendant
• Current status
• Damages being sought
• Probability of liability
• Possible amount of loss

Disclosure of Derivative Instruments that have Contingent Features

Disclose any contingent features included in derivative instruments. An example of a contingent feature is a requirement for an agency to post collateral if its credit rating declines.

Disclose the following information for a derivative containing a contingent feature:

• A description of the contingency and the circumstances that would trigger that contingency
• The total fair value of all derivative instruments containing contingent features
• The total amount the agency would have to post as collateral if the triggering circumstances occurred
• Any amounts posted as collateral by the agency during the year

The purpose of the above disclosures is to help assess the timing and likelihood of the occurrence of contingent features and to assess the potential impact on an agency’s financial condition should the circumstances that trigger the contingent features occur.

For more information on the reporting of derivative instruments, see Note 7 – Derivative Instruments.

Disclosure of Significant Commitments

Disclose contractual commitments entered to fund private investments made by external investment managers. Disclose the fair value and risks associated with such investments and provide the amount committed for future funding.

Disclose derivative instrument transactions meeting the GASB 53 exclusion of a normal purchase or sale contract if the contract represents a significant commitment. Disclose the fair value and risks associated with such derivative instruments.

Submit a copy of the agency’s Note 15 from its published AFR through the ONDSS web application. The required format is a Microsoft Word document (latest version: docx) with header information that includes: agency name/number and note number/name. If Note 15 contains a table, include the table in the Word document — rather than as a separate Excel document or other database application file. If Note 15 does not apply, do NOT submit a note to indicate “not applicable.”