What defines a contingency or provision in financial reporting?

In financial reporting, a contingency or provision is defined as a situation where a transaction is dependent on the occurrence of a future event. This means that the obligation or potential liability does not exist until that event occurs. For instance, if a company is involved in a lawsuit, it may recognize a provision related to potential damages, but the actual liability is contingent upon the outcome of the lawsuit.

When the choice states that "a transaction depends on another event to exist," it highlights the key characteristic of a contingency: the uncertainty of the event's occurrence. This dependency is fundamental to understanding how contingencies work in accounting standards, as it reflects the need to disclose potential liabilities or losses that may arise from future events.

The other options, although they represent aspects of financial transactions, do not encapsulate the specific nature of a contingency or provision. While future cash flows are an important consideration in financial reporting, they do not directly address the dependency on an event's occurrence. Measurability is essential for recognizing transactions, but it does not define the essence of a contingency. Lastly, a dependency leading to guaranteed revenue is not applicable, as a contingency typically involves uncertainty rather than assurance of revenue.