Likelihood of occurrence

Definition

Likelihood of occurrence is the probability that a contingent liability will materialize into an actual financial obligation. It determines how these potential liabilities should be reported in financial statements.

5 Must Know Facts For Your Next Test

1. Likelihood of occurrence is categorized as probable, reasonably possible, or remote.
2. Contingent liabilities must be recorded in financial statements if they are both probable and can be reasonably estimated.
3. If a contingent liability is reasonably possible, it must be disclosed in the notes to the financial statements.
4. Remote contingent liabilities typically do not require any reporting or disclosure.
5. The assessment of likelihood affects whether a company needs to recognize an expense or simply provide disclosure.

Related terms

Contingent Liability:

A potential obligation that may arise depending on the outcome of a future event.

Probable:

The highest level of likelihood for a contingent liability, indicating that it is likely to occur.

Reasonably Possible: An intermediate level of likelihood for a contingent liability where its occurrence is more than remote but less than probable.