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

Disclosure 
IPSAS includes disclosure requirements for contingent liabilities that have already been 
recognized in financial statements and those that haven’t.
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Accounting 
Treatment 
For the contingent liabilities that have already been recognized (called “provisions”), IPSAS 
requires disclosure in notes to financial statements of the information that would help users 
understand changes in contingent liabilities during the reporting period. Thus, for each class 
of recognized contingent liability, the government should disclose:
• the amount at the beginning and end of the period;
• additional provisions made in the period, including increases to existing provisions;
• amounts used (that is, incurred and charged against the provision) during the period;
• unused amounts reversed during the period; and 
• the increase during the period in the discounted amount arising from the passage of time 
and the effect of any change in the discount rate. 
In addition, for each class of recognized contingent liability, the government should also 
disclose: 
• a brief description of the nature of the contingent liability and the expected timing of any 
payments;
• an indication of the uncertainties about the amount or timing of these payments, including 
the major assumptions made concerning future events where necessary to provide 
adequate information; and
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Only when a contingent contract relates to a financial arrangement (e.g., a financial derivative), where the 
arrangement has value because it is tradable, does GFSM 2001 call for recognition of the contingency as a 
liability. 
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IPSAS 19. See also Appendix D of IPSAS 19 for examples of how information could be disclosed. 

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• the possibility of any reimbursement.
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For the contingent liabilities that have not been recognized in financial statements, either 
because the contingency is not likely to materialize (probability is less than 50 percent) or 
because the payments cannot be estimated reasonably well, IPSAS requires the disclosure of 
the same information as presented in the previous paragraph, unless the probability of 
payments is remote. In addition to this information, however, the government is required to 
present, where practicable, an estimate of the financial effect of each class of contingent 
liabilities (and if it is not practicable, that fact is required to be stated). 
At the same time, IPSAS allows for exemptions from the disclosure requirements in those 
cases when disclosure can be expected to prejudice the position of the government in a 
dispute with other parties. In such cases, while the information itself need not be disclosed, 
what should be disclosed is the general nature of the dispute, together with the fact that, and 
reason why, the information has not been disclosed (IPSAS 19, paragraph 109). 
The statistical reporting standards (GFSM 2001) require the disclosure of contingent 
liabilities as a memorandum item to the balance sheet, including a description of the nature of 
the various contingencies and some indication of their possible value (without giving specific 
recommendations, but mentioning among the options the face value of the loan and the 
present value of expected government payments). 
Statistical 
Treatment