5.7 Provisions, contingent liabilities and contingent assets

Question 1

What is the purpose of IAS 37?

Answer 1

To ensure that the appropriate recognition criteria are applied to provisions, contingent liabilities and contingent assets.

Question 2

What is a provision?

Answer 2

A liability of uncertain timing or amount.

Question 3

When should a provision be recognised?

Answer 3

When:

• there is a present obligation as a result of a past event
• it is probable that an outflow of economic resource will be required to settle the obligation
• the obligation can be reliably estimated

Question 4

What is a contingent liability?

Answer 4

A possible obligation whose existence depends on the occurrence of one of more future events not in control of the entity. e.g. a possible liability from a pending court case.

Question 5

What is a contingent asset?

Answer 5

A possible asset arising from a past transaction whose existence depends on the occurrence of one of more future events not in control of the entity. e.g. possible compensation from a pending court case.