When are contingent liabilities recognized in financial statements?

Contingent liabilities are recognized in financial statements under specific conditions dictated by accounting standards. The correct choice relates to recognizing contingent liabilities when the event that would confirm their existence is considered highly probable and measurable.

The rationale behind this is that contingent liabilities pertain to potential obligations that could arise from past events, contingent upon certain future events occurring. If the likelihood of the future event is assessed to be high and the amount of the liability can also be reasonably estimated, it becomes appropriate to recognize the contingent liability in the financial statements. This ensures that the financial statements present an accurate view of the entity's financial position and obligations.

The context behind the other options is also crucial. For instance, recognizing a contingent liability when the amount can be estimated with certainty without considering the likelihood of the event occurring would not provide a reliable indication of an entity’s actual obligations. Similarly, such liabilities are not recognized solely because they arise from contractual agreements, as some contractual liabilities may not meet the criteria of being contingent. Lastly, the outcome of future events being uncertain does not itself dictate recognition; it’s the level of probability and measurability that is essential for this recognition under accounting standards such as IAS 37.