A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided not to report it on the balance sheet or in the notes to the financial statements, this could be considered a violation of generally accepted accounting principles.

Question

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According to generally accepted accounting principles (GAAP), a contingent liability that has a reasonable possibility of becoming an actual liability should be disclosed in either the balance sheet or in the notes to the financial statements. Failure to do so may be perceived as a violation of GAAP.

A Certain Contingent Liability Was Evaluated at Year-End, and Considered