Contingency and contingent liability :
A contingency is not defined in IAS 37. In plain English a contingency is an unforseen event that may or may not happen. IAS 37 defines a contingent liability at paragraph 10. It has two limbs to the definition: (a) a possible obligation that arises from past events; or (b) a present obligation (liability) that fails the recognition criteria. The definition at paragraph 10 is:
“(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
(b) a present obligation that arises from past events but is not recognized because:
(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
(ii) the amount of the obligation cannot be measured with sufficient reliability.”
Learn more on Contingency and contingent liability from another post in the issue and reference books.