Glossary

Contingent liability

A contingent liability is a possible future obligation that hinges on an uncertain event — a lawsuit, a guarantee called — disclosed in the notes but not booked until it is likely.

2 min read

Possible obligationDepends on an event

Disclosed, not bookede.g. lawsuits/guarantees

Definition

A contingent liability is a potential obligation whose existence depends on a future event outside the company’s control — a pending legal claim, or a guarantee that might be called. It is disclosed in the notes and only recognised as a provision once it becomes probable.

In plain terms

It is a "maybe we will owe this" that is real enough to warn readers about but not certain enough to put a number in the accounts.

Why it matters for your company

Lenders scrutinise contingent liabilities in the notes because a called guarantee can suddenly become a hard debt. Disclose them properly — hidden ones destroy trust. See personal guarantee.