When must a company disclose potential losses from ongoing litigation?

A company must disclose potential losses from ongoing litigation if it is probable that a future obligation will arise. This requirement is rooted in the accounting standard that governs contingent liabilities, which states that any losses must be recognized in the financial statements if the loss is probable and the amount can be reasonably estimated. This ensures that the financial statements provide a complete and accurate view of the company’s financial position, acknowledging the potential impacts of legal disputes.

By disclosing these potential losses, stakeholders, including investors and creditors, can make more informed decisions based on the company's actual risk profile. This principle is vital for maintaining transparency and accountability within financial reporting, as it prevents companies from presenting an overly optimistic view of their financial health when significant risks are present.

In contrast, the other options suggest circumstances under which companies would fail to report such information, which could mislead stakeholders about the company's actual risks and liabilities. Therefore, recognizing and disclosing potential losses when they are probable reflects sound accounting practices and a commitment to transparency.