Effective Date: February 09, 2015
Expiration Date: February 09, 2029
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2.1.1 This chapter describes the accounting procedure for recognizing and disclosing NASA's contingent liabilities.
2.1.2 A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur.
2.1.3 Resolution of the uncertainty may confirm a gain (reduction of liability) or a loss (increase in liability).
2.1.4 Legal action, with a potential negative outcome for NASA, can create a contingent liability that will be recognized in the Agency's financial statements.
2.2.1 A contingent liability should be recognized in NASA's general ledger when all three of these conditions are met:
a. A past event or exchange transaction has occurred that gives rise to a liability.
b. A future outflow or other sacrifice of resources is probable.
c. The future outflow of resources is measurable.
2.2.2 Liability amounts classified as probable and measurable are recognized in NASA's integrated accounting systems as stated in Section 2.5.1.b of this NPR and reported on the consolidated balance sheet.
2.3.1 A future outflow of resources is "Probable" if the future confirming event or events are more likely than not to occur, with the exception of pending or threatened litigation and unasserted claims. For pending or threatened litigation and unasserted claims, the future outflow of resources is "Probable" if the future confirming event or events are likely to occur. Amounts classified as probable, but not measureable, are disclosed in the footnotes to the financial statements. Disclosure should include the nature of the contingency and an estimate of the possible liability, an estimate of the range of the possible liability, or a statement that such an estimate cannot be made.
2.3.2 A future outflow of resources is "Reasonably Possible" if the likelihood of the future confirming event or events is less than "Probable" but more than "Remote." Amounts classified as reasonably possible are disclosed in the footnotes to the financial statements under the same disclosure standard as in Section 2.3.1 of this NPR.
2.3.3 A future outflow of resources is "Remote" if the likelihood of the future confirming event or events is slight. Amounts classified as remote are not included in the financial reports.
2.4.1 Liability is measurable if it has a relevant attribute that can be quantified in monetary units with sufficient reliability to be reasonably estimable.
2.4.2 Liabilities reported in the financial report are measured by different attributes specified by various accounting standards (e.g., fair market value, current cost, present value, and historical cost).
2.4.3 The estimated liability may be a specific amount or a range of amounts. If some amount within the range is a better estimate than any other amount within the range, that amount is recognized. If no amount within the range is a better estimate than any other amount, the minimum amount in the range is recognized (posted to the general ledger) and the range and a description of the contingency should be disclosed in the notes to the financial statements.
2.5.1 During each fiscal quarter, Center OCFO will:
a. Coordinate collection of Center information from Center OGC of pending or threatened litigation, claims, and assessments, including cases to be paid from the Judgment Fund against NASA in a single report prior to the end of each fiscal quarter. These matters may include claims, or threatened claims, based on employment, contract, or personal conduct actions by NASA or its personnel, accidents or other events. For each of the matters reported, Center OGC should identify the likelihood of an unfavorable outcome as one of three categories: Probable, Reasonably Possible, and Remote.
b. Record pending or threatened litigations, claims, and assessments that are categorized as probable and measurable by Center OGC. With the exception of pending or threatened litigation, and unasserted claims, "probable" means that is more likely than not that NASA will have to make a payment. For pending or threatened litigation and unasserted claims, "probable" means "likely". See Section 2.3 of this NPR for definition of probable, reasonably possible and remote.
2.6.1 After the third and fourth quarters of the fiscal year, as required under OMB Circular No. A-136. Financial Reporting Requirements, Agency OCFO will request Interim (third quarter) or Final (fourth quarter) Legal Representation Letters (LRL) from Headquarters OGC. The LRLs will be provided to the Agency independent auditor, with a copy to the Agency OIG and OCFO, a summary of material pending or threatened litigation, claims, and assessments, including cases to be paid from the Judgment Fund against NASA. The LRLs will also identify those cases and claims reported in a prior LRL that are no longer pending.
2.6.2 Using the form templates provided by the Department of Justice, the summaries of cases reported in the LRL will include a synopsis of each case and its current posture and identify the likelihood of an unfavorable outcome as one of three categories: Probable, Reasonably Possible, and Remote. See Section 2.3 of this NPR for definitions of these categories.
2.6.3 Materiality considerations. In accordance with SFFAS No. 12, Recognition of Contingent Liabilities Arising from Litigation, the requirements for recognizing or disclosing contingent liabilities for pending or threatened litigations and unasserted claims are not applicable to immaterial items. While determining the materiality of contingent liabilities arising out of pending or threatened litigations or unasserted claims, both qualitative and quantitative aspects of the materiality should be evaluated to determine whether a liability should be recognized and/or disclosed in the financial statements. The Agency Auditor will work with Agency OCFO to identify the materiality threshold for reporting cases in the LRLs.
A summary of commitments and contingencies is reported annually by each Center OCFO and included as a line item or note in NASA's trial balance system and annual financial statements. This data reflects NASA's position at the end of the fiscal year. The data includes the Agency financial commitments and contingencies stated at the maximum limit of risk.
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