What is defined as a contingent liability according to IAS 37?

A contingent liability, as defined by IAS 37, refers to a present obligation that is not recognized in the financial statements because it is unlikely that an outflow of resources embodying economic benefits will occur. This aligns perfectly with the notion that, while a liability exists, the level of uncertainty surrounding the obligation's occurrence or the amount makes it inappropriate for immediate recognition in the financial accounts.

The focus here is on the probability of the economic outflow related to the obligation, which is a key criterion in determining whether the liability should be acknowledged in the financial statements. Hence, if the likelihood is assessed as low, the obligation remains a contingent liability, ensuring that financial statements present a more accurate picture of a company's financial position without overstating liabilities that may not materialize.

In contrast, the other options either mischaracterize the nature of contingent liabilities or misrepresent the accounting treatment according to IAS 37. For instance, some options suggest that these are definite or measurable obligations, which contradicts the inherent uncertainty that characterizes contingent liabilities. Understanding the nuances of contingent obligations is critical for accurate financial reporting and compliance with accounting standards.