A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:

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According to generally accepted accounting principles (GAAP), a loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is probable and the amount of the loss can be reasonably estimated. This means that the probability of the liability occurring is greater than 50% and the amount of the loss can be estimated with a reasonable degree of certainty. Accruing a loss contingency in any other circumstance could result in misleading financial statements.

A Loss Contingency Should Be Accrued in a Company's Financial