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Understanding the accounting for loss contingencies is important during times of business interruptions, market fluctuations and volatility experienced by healthcare and insurance providers. The Governmental Accounting Standards Board (GASB) provides guidance for contingencies in the Codification Section C50 paragraphs .109-.168. Common transaction areas this section addresses include:

  • Incurred, but not reported, medical claims for self-insured governments or members of risk pools
  • Various claim liabilities
  • Impairment of assets
  • Collectability of receivables
  • Property tax appeals
  • Unemployment compensation claims

While accounting and reporting for contingencies can be a complex area with multiple considerations, the following are some key takeaways from the guidance:

  • Liability recognition results when it is probable the liability has been incurred by the date of the financial statements and the amount of loss can be reasonably estimated. (Probable is defined as “the future event or events are likely to occur”)
  • This section includes guidance for reporting loss contingencies under both governmental funds and internal service funds
  • Governments should consider subsequent event disclosures for liabilities that were incurred after the date of the financial statements, or where there is a reasonable possibility that a liability was incurred after the date of the financial statements
  • Be conservative when it comes to reporting gain contingencies. Contingencies that may result in gains should not be reported as receivables to prevent revenue from being recognized before it is realized. Governments should consider conservative disclosures for gain contingencies.

In preparing for the audit and year-end reporting process, the following are some suggested action steps for governments:

  1. Evaluate current contracts or claims that may be impacted by the pandemic and speak with your legal representative about the probability of any losses
  2. Work with healthcare claim administrators and risk pools to ensure information will be available in a timely manner for the audit
  3. Discuss the need for additional contingency disclosures with your auditor

For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.

© 2024 Baker Tilly US, LLP

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