Contingent liability disclosure in the footnotes of the financial statements would normally be made when
A) the outcome of the accounting event is deemed probable, but a reasonable estimation as to the amount cannot be made by the client or auditor.
B) a reasonable estimation of the loss can be made, but the outcome is not probable.
C) the outcome of the accounting event is deemed probable, and a reasonable estimation as to the amount can be made.
D) the outcome of the accounting event as well as a reasonable estimation of the loss cannot be made.

Question

Quizplus · Accepted Answer

Disclosure of a contingent liability in the financial statements' footnotes is appropriate when the likelihood of occurrence is probable, and the estimate of loss cannot be made with certainty. Thus, option A is correct, where the outcome is probable, and a reasonable estimation of loss cannot be made. Option B is incorrect, as in this case, the possibility of occurrence is uncertain despite estimating the extent of loss. Option C is incorrect, as the contingency's disclosure in the footnotes is only warranted when the estimation of loss cannot be reasonably made, even if the event of occurrence is likely. Option D is incorrect as the disclosure in the footnotes is not necessary where the outcome and loss cannot be estimated.

Contingent Liability Disclosure in the Footnotes of the Financial Statements