Acca financial Accounting (FA) Study Text ac ca (FA)

part of those other parties that it will discharge those 

responsibilities

 (IAS 37, para 10) 

 

 

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Chapter 12 

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5 

Contingent liabilities and contingent assets 

A contingent liability is defined as: 

(a) 

'a possible obligation that arises from past events and whose 

existence will be confirmed only by the occurrence or non-

occurrence of one or more uncertain future events not wholly within 

the control of the entity; or

 

(b) 

a present obligation that arises from past events but is not 

recognised because:

 

(i) 

it is not probable that an outflow of resources embodying 

economic benefits will be required to settle the obligation, or

 

(ii) 

the amount of the obligation cannot be measured with sufficient 

reliability'

 (IAS 37, para 10). 

When a provision is not recognised in the financial statements because it does 

not meet the criteria specified in IAS 37, it may still need to be disclosed as a 

contingent liability in the financial statements. 

Examples of contingent liabilities include outstanding litigation where the 

potential costs cannot be estimated with any degree of reliability or when the 

likelihood of losing the litigation is only deemed possible (rather than probable). 

A contingent asset is defined as