A contingency is a possible future event that will have some impact on the firm.

(Schroeder, Clark, & Cathey, 2005, p. 362). The Financial Accounting Standards Board states that three criteria to record loss contingencies are probable, reasonably possible, and remote. Some example of loss contingencies are products warranty, collectability of receivables, and pending litigation. Most company must disclose the loss contingencies if they are expected to be resolved in the near term such as one year and have severe impacts on the companys financial position, cash flow, or the outcomes of operations. In the Statement of Financial Accounting Standards N0.05, accounting for contingencies, when the company is being sued for a specific situation; and the possibility that the client will lose the lawsuit is probable, meaning the lawsuit will be lost and that loss will likely occur to accounts, the firm is required to report this potential lawsuit loss on its financial statements and in the details account losses. Second, when the change of losing lawsuit is reasonably possible, this mean that the change of the lawsuit occurring is more than remote but less than likely. In this case, the firm makes this disclosure in the notes to its financial statements that include the nature of the contingency and give an estimate of the possible loss. Third, when the possibility of loss is only remote, the certain loss contingencies are also disclosed in the notes to a companys financial statements. If there have an estimate in the note, it includes the nature and the value of any recovery that could be expected to result. Under the requirement of the FASB, companies have to disclose loss contingencies. All the details about the potential lawsuit should be reported into the companys financial statement, or there are footnotes to describe the nature and the estimate amount of loss contingencies.