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To answer this question, first, we have to understand what contingent liability is. A contingent liability is the potential or uncertain loss that may occur at some point as an outcome of a specific event. It is not an absolute obligation; it may or may not happen depending on how the future unfolds itself.
It is recorded only if the liability amount can be estimated relatively.
According to the practice of disclosure in the conservative approach of accounting, the liability may be disclosed as a footnote in the financial statements of a company or not reported if conditions are not met. Therefore, the contingent liability has no such accounting treatment — for example, potential lawsuits, product warranties, and pending investigation.
Contingent liabilities are possible obligations, which may or may not occur in the future and disclosed in the notes to the accounts.
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about 6 years ago