When might it be necessary to disclose contingent liabilities in financial statements?

Disclosing contingent liabilities in financial statements is necessary when there is a possibility that these liabilities could have a financial impact on the company. This aligns with the principles of financial reporting, where the goal is to provide transparency and relevant information that could affect the decision-making of users of the financial statements.

Contingent liabilities are potential obligations that may arise depending on the outcome of future events, such as lawsuits or warranties. If there is a chance that these liabilities will come to fruition and affect the company financially, they should be disclosed to inform stakeholders of any potential risks. This helps ensure that the financial statements present a true and fair view of the company's financial position.

In contrast, liabilities that are only expected to occur do not necessarily meet the criteria for disclosure unless their occurrence is probable and quantifiable. Standard practice does not dictate that all contingent liabilities be disclosed, as unnecessary disclosures could clutter financial statements and detract from the most important information. Finally, liabilities that are certain would not be considered contingent and would instead be recognized as standard liabilities on the balance sheet.