Explanation:

- Contingent liability is a possible obligation that may arise depending on the outcome of a future event.

- It is not recorded as an actual liability in the balance sheet, but instead is shown in the notes as per accounting conventions.

- Option 1: Disclosure

- *Correct answer.*

- According to the Disclosure convention, all material information, including contingent liabilities, must be revealed in financial statements, even if not directly recorded in the main accounts.

- Option 2: Materiality

- This refers to the importance of information–only significant items are reported. Contingent liability is shown regardless of its size, as it could affect decisions.

- Option 3: Consistency

- This ensures that the same accounting policies are followed from period to period. It does not affect contingent liability reporting.

- Option 4: Conservatism

- This requires recognizing expenses or losses as soon as possible but not revenue until it is realized. It guides provision for liabilities, not simply disclosure.