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With a few exceptions, ASC 460 applies to the following type of guarantee contracts.

Excerpt from ASC 460-10-15-4

  1. Contracts that contingently require a guarantor to make payments… to a guaranteed party based on changes in an underlying that is related to an asset, a liability, or an equity security of the guaranteed party…
  2. Contracts that contingently require a guarantor to make payments… to a guaranteed party based on another entity's failure to perform under an obligating agreement (performance guarantees)...
  3. Indemnification agreements (contracts) that contingently require an indemnifying party (guarantor) to make payments to an indemnified party (guaranteed party) based on changes in an underlying that is related to an asset, a liability, or an equity security of the indemnified party.
  4. Indirect guarantees of the indebtedness of others, even though the payment to the guaranteed party may not be based on changes in an underlying that is related to an asset, a liability, or an equity security of the guaranteed party.

ASC 460 does not apply to the following types of guarantee contracts.

Excerpt from ASC 460-10-15-7

  1. A guarantee or an indemnification that is excluded from the scope of Topic 450 (see paragraph 450-20-15-2—primarily employment-related guarantees)
  2. A lessee’s guarantee of the residual value of the underlying asset at the expiration of the lease term under Topic 842
  3. A contract that meets the characteristics in paragraph 460-10-15-4(a) but is accounted for as variable lease payments under Topic 842
  4. A guarantee (or an indemnification) that is issued by either an insurance entity or a reinsurance entity and accounted for under Topic 944 (including guarantees embedded in either insurance contracts or investment contracts)
  5. A contract that meets the characteristics in paragraph 460-10-15-4(a) but provides for payments that constitute a vendor rebate (by the guarantor) based on either the sales revenues of, or the number of units sold by, the guaranteed party
  6. A contract that provides for payments that constitute a vendor rebate (by the guarantor) based on the volume of purchases by the buyer (because the underlying relates to an asset of the seller, not the buyer who receives the rebates)
  7. A guarantee or an indemnification whose existence prevents the guarantor from being able to either account for a transaction as the sale of an asset that is related to the guarantee's underlying or recognize in earnings the profit from that sale transaction
  8. A registration payment arrangement within the scope of Subtopic 825-20 (see Section 825-20-15)
  9. A guarantee or an indemnification of an entity's own future performance (for example, a guarantee that the guarantor will not take a certain future action)
  10. A guarantee that is accounted for as a credit derivative at fair value under Topic 815.
  11. A sales incentive program in which a manufacturer contractually guarantees to reacquire the equipment at a guaranteed price or guaranteed prices at a specified time, or at specified time periods (for example, the entity is obligated to reacquire the equipment or the entity is obligated at the customer’s request to reacquire the equipment). That program shall be evaluated in accordance with Topic 606 on revenue from contracts with customers, specifically the implementation guidance on repurchase agreements in paragraphs 606-10-55-66 through 55-78.

For guarantees that fall within the scope of ASC 460, guarantors are required to recognize a liability equal to the fair value of the guarantee upon its issuance and to provide specific disclosures related to the guarantee. Guarantors may be excluded from the scope of the initial liability recognition provisions included in ASC 460-10-25-1 depending on the type of guarantee; however, the disclosure requirements outlined in ASC 460 may still be required.
The disclosures required by ASC 460 do not eliminate or affect disclosure requirements under other applicable guidance, such as disclosures required under:
  • ASC 825 related to disclosures of the fair value of financial guarantees
  • ASC 450 related to disclosures for contingent losses that have a reasonable possibility of occurring
  • ASC 815 related to guarantees accounted for as derivatives
  • ASC 275 for disclosures of significant risks and uncertainties that could significantly affect the amounts reported in the financial statements in the near term
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