Contingent Liabilities: Issues and Practice; Aliona Cebotari; imf working Paper 08/245; October 1, 2008

Aside from the disclosure requirements in the countries’ accounting standards, many 
countries have institutionalized the requirements to report contingent liabilities in their 
fiscal responsibility legislation or in the legislation covering public financial management 
(Table 4). While in some countries these requirements are limited to contingent liabilities 
alone (Canada, Chile), in others the legislation requires more comprehensive disclosure of 
fiscal risks, including those from sensitivity of fiscal projections to macroeconomic 
assumptions and long-term risks from demographic changes. 
 
The legislative requirements for disclosure in several countries follow the accounting 
principle of “materiality”, under which a risk exposure is disclosed if it may have a 
material effect on the government’s financial position (Australia, New Zealand, U.K., U.S.). 
Some countries have translated this principle into specific cut-off points for disclosing 
separately large liabilities, with liabilities below the threshold not requiring separate 
disclosure but included in an “other quantifiable contingent liabilities” total (Australia, New 
Zealand).
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The “materiality” principle certainly has potential for abuse and may be used as 
an excuse for not disclosing liabilities.
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The real test for whether a liability should be 
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Australia defines as material and requiring individual disclosure contingent liabilities and other fiscal risks 
with a possible impact on the forward estimates greater than $20 million (about 0.01 percent of 2006
–
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expenditures) in any one year, or $40 million over the forward estimates period. New Zealand exempts from 
disclosure risks that are estimated to have an impact on the fiscal forecasts of less than $10 million (0.01 percent 
of 2006–07 expenditures) in any one year.
52 
See the speech by Arthur Levitt (chairman of Securities and Exchange Commission) “The Numbers Game,” 
given at the New York Center for Law and Business, September 1998.

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disclosed should not be the quantitative cutoff, but a judgement of whether the disclosed 
information would make a difference to the investor or the analyst using the information.