Define contingent liabilities. How and when should a contingent liability be recorded in the accounts?

(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 enterprise; 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.

How and when

An enterprise should not recognize a contingent liability. An enterprise should disclose a contingent liability unless the possibility of an outflow of resources embodying economic benefit is remote.