In accounting, contingent liabilities are liabilities that may be incurred by an entity depending on the outcome of an uncertain future event 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
According to International Monetary Fund's Government Finance Statistics Manual, contingent liabilities shall be classified as:
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
Outstanding lawsuits
Claims against the company not acknowledged as debts
Legal liability
Liquidated damages
Tort
Unliquidated damages
Destruction by Flood
product warranty
Income Tax Disputed
Sales Tax Disputed
Financial guarantees given
References
Liability (financial accounting)
