ACCA FA Syllabus D. Recording Transactions And Events - Contingent liability. - Notes ^{2 / 3}

Contingent liabilities are

1. possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity

2. present obligations that arise from past events but are not recognised because:

   i. they are 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

Recognition

Contingent liabilities should not be recognized in financial statements but they should be disclosed, unless the possibility of any outflow is remote.   The required disclosures are:

• A brief description of the nature of the contingent liability;

• An estimate of its financial effect;

• An indication of the uncertainties that exist relating to the amount or timing of any outflow; and

• The possibility of any reimbursement.

Disclosure Note

Unless the possibility of any outflow is remote, for each class of contingent liability, an entity should disclose at the end of the reporting period, a brief description of the nature of the contingent liability and where practicable

• an estimate of its financial effect

• an indication of the uncertainties relating to the amount or timing of any outflow; and

• the possibility of any reimbursement