For certain claims, it may be necessary to obtain written confirmation from legal counsel that the claim is actually covered by the insurance policy. If the claim is the subject of litigation, a rebuttable presumption exists that realization is not probable. ![]() The recovery of a loss generally would be probable if there is a legally enforceable contract that stipulates the terms of the insurance coverage and the terms are not in dispute nor is there any reason to believe they would be disputed. In other words, the recovery of a loss is treated differently than the recognition of a gain, and an insurance recovery might result in both the recovery of a loss, which can be recognized when probable and a contingent gain, which cannot be recognized until realized. Any amount expected to be recovered in excess of the recognized loss, which will result in a gain, should not be recognized until any contingencies relating to the insurance claim have been resolved. An asset relating to an insurance recovery should be recognized only when realization of the claim is deemed probable, and only to the extent of the related loss recognized in the financial statements. Because FASB Accounting Standards Codification (ASC) 450, Contingencies, does not allow the recognition of gain contingencies, the accounting for insurance recoveries can be more complex than you might expect.Ī potential insurance recovery should be evaluated and accounted for separately from the related loss and should not in any way affect the recorded amount of the loss. Specifically, where a loss is sustained in one fiscal period, but the related insurance recovery is not received until the next fiscal period, questions arise about the timing and amount of potential insurance recoveries to be recorded. When faced with property damage and other losses that an entity has insured itself against, questions often arise with respect to the accounting for that property damage and any related insurance recoveries.
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