Loss contingency definition
/What is a Loss Contingency?
A loss contingency is a charge to expense for what is considered to be a probable future event, such as an adverse outcome of a lawsuit. A loss contingency gives the readers of an organization's financial statements early warning of an impending payment related to a likely obligation.
If the amount of such a loss cannot be reliably estimated and is not considered probable, an entity may still choose to discuss the item in the footnotes that accompany its financial statements.
Examples of Loss Contingencies
Loss contingencies may need to be recorded when a business expects losses from a lawsuit, environmental remediation activities, and product warranty claims. Of these events, environmental remediation activities can constitute the largest possible loss.