Contingent assets
In one sentenceAn asset that may arise for the business from a past event but whose existence depends on future events outside its control, such as compensation in a lawsuit not yet decided.
Simply put
The rule is cautious: a contingent asset is not recorded in the statements, so that profits that may never come are not recognized. It is only disclosed if an inflow of benefits is probable (international standard IAS 37).
If collection becomes virtually certain, such as a final judgment, it is no longer contingent but an asset that is recorded.
Example
A factory filed a lawsuit against an insurance company claiming compensation for a fire, and its lawyer believes winning is likely: the compensation is not recorded in the statements but is mentioned in the notes. After the final judgment, it is recorded.
Don't confuse it with
Contingent liabilitiesA contingent liability is disclosed under broader conditions, and is recognized as a provision if it is probable and can be estimated, while a contingent asset is recognized only if it is virtually certain.