ASC 460 Guarantees
ASC 460 is the US GAAP topic for guarantees. It sets out recognition, measurement, and disclosure requirements for guarantee arrangements, including product warranties.
Related Standards
Explanation
For product warranties, US GAAP distinguishes:
• Assurance-type warranties, which assure that a product meets agreed specifications. They are not separate performance obligations. The company accrues the expected warranty costs, and the accounting and disclosure of these accruals follow ASC 460.
• Service-type warranties, such as extended warranties sold separately or providing a service beyond assurance. They are separate performance obligations under ASC 606, and revenue is deferred and recognized over the service period.
ASC 460 also requires disclosures, such as a reconciliation of changes in the product warranty liability.
Under IFRS, assurance-type warranties are accounted for under IAS 37.
Why It Matters
Many equipment, high-tech, and medical device companies offer both standard and extended warranties – sometimes free of charge as part of a bundle. Classifying them correctly determines whether a cost accrual or a revenue deferral is required and how SAP revenue accounting is designed.
Related Terms
IAS 37 · Performance Obligation · ASC 606 · Contract Liability
Related Articles
• The 5-Step Model of IFRS 15 / ASC 606 Explained for SAP Teams
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