Question

Based on the balance sheet do you think a company can find ways to decrease their chances of any future events being affected by contingent liabilities?

Answer 1

No. A company cannot find ways to decrease their chances of any future events being affected by contingent liabilities based on the balance sheet.

Contingent liabilities are those liabilities that result expected future obligations based on past events but are probably uncertain. That is, firm cannot judge whether such past event will actually result a future liability or not. As it the obligation associated with the contingent liabilities is uncertain,  it shall not be reported on firm's balance sheet. Instead, it would be disclosed as a notes to accounts annexed with the financial statements of the firm.

Users cannot find any contingent liability related reportings on firm's balance sheet and so cannot find ways to decrease their chances of any future events being affected by contingent liabilities based on the balance sheet. However, they can find ways by looking at notes to accounts associated with the balance sheet where firm must have discussed about quantum of future obligations if contingent liability turns certain in future.