Contingencies, Commitments and Subsequent Events
This topic covers loss contingencies, gain contingencies, commitments, guarantees, subsequent events, recognized versus nonrecognized events, and disclosure decisions.
How to study for CPA FAR
Build every answer around recognition, measurement, presentation, disclosure, journal-entry logic, and careful calculation under the AICPA blueprint.
Core concepts
Concept 1
Contingencies, Commitments and Subsequent Events questions test whether a CPA candidate can recognize, measure, present, disclose, or analyze financial reporting information under the applicable framework.
Exam cue: Identify the entity type, reporting framework, account, transaction date, and financial statement affected.
Concept 2
The best FAR answer usually follows recognition criteria, measurement basis, classification, disclosure requirements, and clean journal-entry logic.
Exam cue: Determine whether the task is recognition, measurement, presentation, disclosure, analysis, or correction.
Concept 3
Eliminate answers that mix frameworks, skip accrual accounting, ignore dates, use the wrong basis, or calculate without first identifying the required financial statement assertion.
Exam cue: Check the journal entry, carrying amount, statement classification, and effect on income, equity, cash flows, or disclosures.
Risk pitfalls and guardrails
Calculating before deciding whether the item should be recognized, disclosed, reclassified, or excluded.
Guardrail: Use a 15-second safety pause before finalizing your action.
Using tax, cash, governmental, not-for-profit, or for-profit rules interchangeably.
Guardrail: Use a 15-second safety pause before finalizing your action.
Missing the date, fair value, impairment trigger, restriction, lease classification, or cash flow category that controls the answer.
Guardrail: Use a 15-second safety pause before finalizing your action.
Memory anchors
Loss Contingency
A loss contingency is accrued when loss is probable and reasonably estimable.
Gain Contingency
A gain contingency is generally not recognized before realization.
Reasonably Possible
Reasonably possible losses usually require disclosure rather than accrual.
Remote Loss
Remote loss contingencies generally require no accrual or disclosure, except for certain guarantees.
Commitment
A commitment is a significant obligation or agreement that may require disclosure.
Guarantee
A guarantee may create recognition and disclosure obligations.
Recognized Subsequent Event
A recognized subsequent event provides evidence about conditions existing at the balance sheet date.
Nonrecognized Subsequent Event
A nonrecognized subsequent event concerns conditions arising after the balance sheet date.
Disclosure Window
Subsequent event evaluation runs through the date financial statements are issued or available to be issued.
Contingency Range
When no amount in a probable range is better, the minimum amount is accrued and the range disclosed.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A company is defendant in a lawsuit. Counsel says loss is probable and estimates $250,000. What is recorded?
Counsel considers a material lawsuit loss reasonably possible and estimates a range. What is generally required?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
What is Pass Harbor?
Completely free exam prep for 317 U.S. exams.
- Practice questions
- Flashcards
- Study guides
- Mock exams
- No registration
- No paywall
- Start instantly
“No more expensive exam prep. Quality study tools should be accessible to everyone.”