In addition, the study group had encouraged her to illustrate her tentative answers with numerical illustrations using case data. Prior Knowledge Kim understood from the background readings assigned for her accounting course that Generally Accepted Accounting Principles (GAAP) defined liabilities as “Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. ”
Kim also knew under International Financial Reporting Standards (IFRS) that liabilities were recognized on the balance sheet when “It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. ” Further, Kim understood from her readings that there was a special set of accounting rules covering contingent liability recognition and disclosure. Under GAAP, a contingency is an existing condition involving uncertainty as to possible gain or loss.