Contingent Liability

Often referred to as an off-balance-sheet item, a contingent liability, according to the relevant International Accounting Standard, is a “possible obligation depending on whether some uncertain future event occurs; or is a present obligation but payment is not probable or the amount cannot be measured reliably”. A company that guarantees payment of a loan to a third party, say a supplier, to the supplier’s bank, will have to record it as a contingent liability.