What is a contingent asset?

A contingent asset is a possible asset that may arise because of a gain that is contingent on future events that are not under an entity's control. You should not recognize a contingent asset even if the associated contingent gain is probable.

A contingent asset becomes a realized (and therefore recordable) asset when the realization of income associated with it is virtually certain. In this case, you should recognize the asset in the period when the change occurs.

This treatment of a contingent asset is not consistent with the treatment of a contingent liability, which you should record when it is probable.

The best example of both sides of a contingent asset and contingent liability is a lawsuit. Even if it is probable that the plaintiff will win the case and receive a monetary award, it cannot recognize the contingent asset until such time as the lawsuit has been settled. Conversely, the other party that is probably going to lose in the lawsuit must record a provision for the contingent liability as soon as the loss becomes probable, and should not wait until the lawsuit has been settled to do so.

You may disclose the existence of a contingent asset in the notes accompanying the financial statements when the inflow of economic benefits is probable.