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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 17 – Risk Management
Accrual Requirements


A loss contingency arising from a claim is accrued as of the balance sheet date when both of the following conditions are met:

  • Information available before the financial statements are issued indicates it is probable an asset was impaired or a liability incurred at the date of the financial statements. It must also be probable one or more future events will occur confirming the fact of the loss.
  • The amount of the loss can be reasonably estimated.

Note: When a loss contingency exists, the likelihood that the future event or events will confirm the loss can fall within a range defined as:

  • Probable (likely to occur)
  • Reasonably possible (more than remote but less than likely)
  • Remote (slight)

Accrue the portion of the contingent loss expected to be liquidated with expendable available financial resources through a debit to an expenditure/expense account using a claims and judgments expenditure COBJ and a credit to a liability account (such as claims and judgments payable). The current and noncurrent portions of a long-term claims and judgments payable are reported in GL 1030 and GL 1210, respectively. Current claims and judgments (those incurred and paid within one year) are reported as accounts payable in GL 1010.

In proprietary funds, report any amount of the contingent loss where the liability has a fixed due date other than the reporting date (for example, a portion of a court judgment payable from future resources).

Use the following COBJs for claims and judgments:

  • 7061 Wkr comp claim-self ins prog
  • 7062 Workers comp – indemnity payments
  • 7220 Court expenses – parental notification
  • 7221 Settle & judg tx tort/pre-lit & rel clms
  • 7225 Judgments & settlemts-atty fees
  • 7226 Judgmt/settlemt-claimant/other legal fee
  • 7227 Misc claims act payments
  • 7228 Legislative claims
  • 7229 Judgment settlement claimant and atty
  • 7231 Work-comp/med serv & attny pmt
  • 7232 Work comp-sip-med serv & atty pmt
  • 7234 Compensation for crime victims
  • 7235 Comp to victims of crime aux payments
  • 7236 Crime victims expenses
  • 7237 Payment of claims from trust
  • 7867 Misc claims adj, non-cash
  • 7869 Misc claim/jdgmt/sttlmnt non-cash op exp

Incurred but not reported losses

An accrual also includes any losses incurred prior to the balance sheet date but not reported when the financial statements are prepared. These are termed as “incurred but not reported” (IBNR) losses. The IBNR losses must be possible to reasonably estimate and it must be probable that a claim will be asserted. This includes:

  • Known losses expected to be paid in the future
  • Unknown losses expected to become claims
  • Expected future losses/recoveries on existent claims

The liability is based on the estimated ultimate cost of settling the claims. Methods often used are:

  • Case-by-case review of claims
  • Application of past experience to understanding claims
  • A combination of the two methods

Claims liabilities include specific, incremental claim adjustment expenditures/expenses. In addition, estimated recoveries on unsettled claims (such as salvage and subrogation) are evaluated in terms of their estimated realizable value and deducted from the liability for unpaid claims. Also deduct estimated recoveries on settled claims from the liability for unpaid claims.

If the determination of the dollar amount to accrue is not a specific amount, but lies within a range, use the following judgment:

  • Accrue an amount within the range if it is a better estimate than any other.
  • If no amount is a better estimate, then accrue the minimum amount within the range.


Usually an agency reports its risk financing and related insurance activities in the fund in which the activity occurs:

  • In governmental funds — report the current portion in the fund as an expenditure with the related liability. Report the long-term portion in the long-term liabilities adjustment column.
  • In proprietary funds — both the current and long-term portions of expenses and liabilities are reported within the fund.

The Financial Reporting section must pre-approve an agency’s proposed use of a new internal service fund or a special revenue fund to report risk financing activities. This is consistent with the objective of minimizing the number of funds for statewide use. Contact your financial reporting analyst if your agency plans to use a new internal service fund or a special revenue fund to report risk financing activities.

Glenn Hegar
Texas Comptroller of Public Accounts
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