Think of AS 4 as the standard that answers two very practical questions every accountant faces at year-end: What do I do about uncertain liabilities that may or may not materialise? And what about something big that happened after 31 March but before I signed off the accounts? AS 4 gives you the rules for both.
Contingencies are conditions whose outcome is uncertain at the balance sheet date and will only be confirmed by a future event. The classic example: Rajesh & Co. Pvt. Ltd. is sued by a customer on 20 January 2025 for ₹8 lakhs. The case is pending on 31 March 2025. Whether they'll actually pay is unknown. AS 4 says — if a contingent loss is probable (likely to happen) and can be reliably estimated, provide for it (debit P&L, credit provision). If it's only possible (not probable), just disclose it in the notes. If it's remote, ignore it entirely. For contingent gains (like a counter-claim), the rule is stricter — never recognise them in the accounts, only disclose if reasonably certain, because recognising uncertain income violates prudence.
Events Occurring After the Balance Sheet Date are events — favourable or unfavourable — that happen between 31 March (balance sheet date) and the date the Board approves the financial statements (say, 25 May 2025). These split into two buckets. Adjusting events provide evidence of conditions that already existed at 31 March — for example, a debtor who goes bankrupt in April 2025 but was already in trouble on 31 March. You adjust the financial statements for these. Non-adjusting events relate to conditions that arose after 31 March — say, a factory fire in April 2025. You do not adjust the accounts, but you disclose the event and its estimated financial effect in the notes. This is asked frequently as a 4-mark question where students must classify given events and state the correct accounting treatment. Also remember: dividends declared after the balance sheet date are a non-adjusting event under AS 4 — do not create a liability in the current year's balance sheet.