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Contingent liability

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In accounting, contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event[1] such as the outcome of a pending lawsuit. These liabilities are not recorded in a company's accounts and shown in the balance sheet when both probable and reasonably estimable as 'contingency' or 'worst case' financial outcome. A footnote to the balance sheet may describe the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable. It may or may not occur.

Classification

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According to International Monetary Fund's Government Finance Statistics Manual, contingent liabilities shall be classified as:[2]

  • Explicit contingent liabilities
    • Guarantees
      • One-off guarantees
        • Loan and other debt instrument guarantees (publicly guaranteed debt)
        • Other one-off guarantees
    • Other explicit contingent liabilities
  • Implicit contingent liabilities
    • Net implicit obligations for future social security benefits
    • Other implicit contingent liabilities

Examples

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References

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  1. ^ "External Debt Statistics: Guide for Compilers and Users". 9. Contingent Liabilities. International Monetary Fund. 18 June 2014. ISBN 9781484366622. Archived from the original on 28 July 2020. Retrieved 22 May 2020. {{cite book}}: |work= ignored (help)
  2. ^ "Government Finance Statistics Manual 2014" (PDF). International Monetary Fund. Archived (PDF) from the original on 2020-08-08. Retrieved 2020-05-22.