Final answer:
The two criteria for reporting a contingent liability in financial statements are the likelihood of the loss and the ability to estimate the loss amount. Strict criteria are applied in financial reporting to ensure accurate and comprehensive information, considering all potential economic risks.
Step-by-step explanation:
The two criteria used to determine whether a contingent liability is reported in financial statements are the likelihood of the loss and the ability to estimate the amount of the loss.
A contingent liability is recognized in financial statements if the loss is probable (typically interpreted as a likelihood greater than 50%) and if the amount can be reasonably estimated. This assessment helps ensure that the financial statements provide a faithful representation of the company's financial position.
Certain criteria must be satisfied for a measurement or observation to be considered reliable, whether for an expected or unexpected result. In the context of financial reporting, strict criteria apply to ensure that information is accurate and comprehensive, taking into account all known economic risks that might influence a company's financial outcomes.