Contingent Liabilities FAQs What is contingent liability? A contingent liability is a potential obligation that depends on the occurrence or non-occurrence of one or more events in the future. If the event occurs, the company may be required to make a payment; if it does not occur, the company will not be required to make a payment. What are some examples of contingent liabilities? Some examples of contingent liabilities include product warranties, environmental remediation costs, and litigation settlements. How do companies account for contingent liabilities? Companies account for contingent liabilities by recording a provision in their Financial Statements. The amount of the provision is based on the best estimate of the amount that the company will ultimately be required to pay. What disclosure requirements are there for contingent liabilities? The disclosure requirements for contingent liabilities are set forth in accounting standards. In general, companies must disclose the nature of the contingency and the expected timing and amount of any potential payments. How can companies mitigate the risks associated with contingent liabilities? Companies can mitigate the risks associated with contingent liabilities by maintaining adequate insurance coverage and establishing reserves. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.