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Frequently Asked Questions

What Is a Contingent Liability?

A contingent liability is a liability that may occur depending on the outcome of an uncertain future event. Contingent liability as a term does not apply only to companies, but to individuals as well. A contingent liability has to be recorded if the contingency is likely and the amount of the liability can be reasonably estimated. Both GAAP (generally accepted accounting principles) and IFRS (international financial reporting standards) require companies to record contingent liabilities in accordance with the three accounting principles: full disclosure, materiality, and prudence.