Reserve Calculator
Calculate probability-weighted expected loss for a litigation matter. Get instant IAS 37 accounting treatment recommendations.
Enter Matter Details
The maximum potential damages/judgment amount
Estimated legal fees to complete the matter
Calculation Results
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Understanding the Calculation
What is expected loss?
Expected loss is the probability-weighted value of potential litigation outcomes. Rather than using the maximum exposure (which overstates risk) or ignoring contingencies (which understates risk), expected loss provides a statistically defensible middle ground.
Why probability-weight?
Probability weighting reflects that not all cases result in adverse outcomes. By multiplying exposure by the probability of loss, you get a value that:
- • Reflects the true economic cost across a portfolio of matters
- • Provides a defensible basis for financial planning
- • Aligns with actuarial and insurance industry practices
IAS 37 probability bands
IAS 37 establishes three probability classifications that determine accounting treatment:
Provision required. Recognise a liability on the balance sheet for the best estimate.
Disclosure required. Describe the contingency in notes to the financial statements.
No disclosure required. Monitor internally but no financial statement impact.
Learn more: Read our comprehensive guide to Understanding IAS 37 for CFOs or learn how to calculate expected loss.