FRS12 supersedes SSAP18 that dealt with 'contingencies'. FRS12 distinguishes between 'provisions' which are liabilities that must be recognised and 'contingent liabilities’, which must not be recognised but may be disclosed in a note to the accounts. Broadly, contingent liabilities arise from events where it is possible but not probable that there will be a transfer of economic benefits and from the extremely rare case where a reliable estimate of the liability is not possible. Contingent assets must not be recognised; this is similar to the rule in SSAP18, which prohibited recognition of contingent gains.
