Certified Government Financial Manager (CGFM) 2025 – 400 Free Practice Questions to Pass the Exam

To be included in financial statements, a judgment or claim must meet specific recognition criteria based on accounting principles. The primary requirement is that it is probable a liability has been incurred. This means there should be a reasonable likelihood that the organization will have to settle the obligation, often validated through legal assessments or the organization's circumstances.

Recognition of liabilities involves considering whether the obligation is more likely than not to exist at the reporting date. This probability standard ensures that financial statements accurately reflect the organization's financial position and obligations, which are critical for stakeholders making informed decisions.

Other options might suggest certain conditions for reporting, but they do not align with the recognized accounting framework. For instance, legal requirements or mutual agreements are relevant in some contexts but do not inherently determine if a liability should be recognized in the financial statements. Similarly, the absence of future payments does not negate the recognition of a liability if it is probable that one exists. Thus, focusing on the probability of liability ensures that the financial records provide a true and fair view of the organization’s obligations.