What Is a Contingent Liability?

A contingent liability, under IAS 37, is a possible obligation arising from past events whose existence depends on uncertain future events outside the entity's control — or a present obligation that isn't recognised because an outflow isn't probable or the amount can't be measured reliably. Crucially, a contingent liability is disclosed in the notes, not recognised on the statement of financial position.

Provision, contingent liability, or nothing?

IAS 37 sorts obligations by how likely the outflow is:

• Probable outflow (more likely than not) and reliably measurable — recognise a provision.
• Possible outflow, or present obligation not reliably measurable — disclose a contingent liability.
• Remote outflow — no provision and no disclosure.

Why the distinction matters

The difference between recognising a provision and merely disclosing a contingent liability changes both the reported liabilities and profit. Getting the probability judgement right is therefore central to a correct answer.

Contingent liabilities in ACCA FR and SBR

FR and SBR test this regularly — often a lawsuit or warranty scenario where you must decide provision versus disclosure. The marks come from applying the probability criteria to the facts and stating the correct treatment. Practising these and marking them against the official ACCA scheme with The 50% Club is the fastest way to get the judgement — and the marks — right.