British American Tobacco (BAT) plc is the second largest tobacco company in the world, after U.S.-based Philip Morris International Inc. Its contingent liabilities note runs 12 pages long in its financial statements. The following selected information about contingent liabilities has been extracted from the notes to its financial statements: In cases where the Group has an obligation as a result of a past event existing at the balance sheet date, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated, a provision would be recognised based on best estimates and management judgment. . . . While it is impossible to be certain of the outcome of any particular case or of the amount of any possible adverse verdict, the Group believes that the defences of the Group s companies to all these various claims are meritorious on both the law and the facts, and a vigorous defence is being made everywhere. . . . Having regard to all these matters, the Group (i) does not consider it appropriate to make any provision in respect of any pending litigation and (ii) does not believe that the ultimate outcome of this litigation will significantly impair the Group s financial condition. Instructions (a) British American Tobacco is a defendant in thousands of cases against tobacco companies. Management holds the view that there are good defences against all the claims and states that it wil
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