Contingent liability refers to a potential obligation or liability that may or may not occur in the future, depending on the outcome of a specific event. It is a possible liability that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events that are not fully within the control of the entity.

Not recognised:
Contingent liabilities are not recognized in the financial statements as they are not yet obligations. This means that they are not included as liabilities in the balance sheet and are not reflected in the income statement. However, they are disclosed in the notes to the financial statements.

Disclosure:
The disclosure of contingent liabilities is important because it provides users of the financial statements with relevant information about potential future obligations that may impact the financial position and performance of the entity. The disclosure typically includes a description of the nature of the contingent liability, an estimate of the financial impact, and an assessment of the likelihood of occurrence.

Examples:
Some examples of contingent liabilities include pending lawsuits, claims or disputes, guarantees given by the entity, and possible tax assessments. Until these events are resolved, they remain contingent liabilities.

Recognition criteria:
For a contingent liability to be recognized in the financial statements, it must meet certain recognition criteria. These criteria include the existence of a present obligation, a probable outflow of resources, and the ability to reliably estimate the amount of the liability.

Impact on financial statements:
By not recognizing contingent liabilities, the financial statements may understate the entity's true financial position and performance. However, the disclosure of these potential liabilities provides transparency and allows users of the financial statements to evaluate the potential impact on the entity's financial health.

In conclusion, contingent liabilities are not recognized in the financial statements but are disclosed in the notes to the financial statements. This ensures transparency and provides relevant information to users of the financial statements about potential future obligations that may impact the entity's financial position and performance.