Contingencies

Question 1

When is a contingent liability recognized as a provision?

Answer 1

_the entity has a present obligation arising as a result of a past event
_it is considered probable that the entity will have an outflow of economic resources
_the entity is able to make a reliable estimate of the outflow of economic resources

Question 2

Disclosure requirements for a provision

Answer 2

_brief description of nature, timing, and uncertainty of payments
_amount of any expected reimbursements
_carrying amount at the beginning and end of the period
_increases, decreases, reversals of unused amounts, increases due to passage of time during the year

Question 3

When will a company disclose but not record a contingent liability?

Answer 3

When outflow is possible but not probable OR when it i probable but cannot be reasonably estimated

Question 4

When will a company neither disclose nor record a contingent liability?

Answer 4

When the outcome is remote (eg. frivolous law suit)

Question 5

Can a company recognize a contingent asset?

Answer 5

No. If inflow of economic benefits is PROBABLE, they are permitted to disclose in the notes.

Question 6

ASPE difference: contingent liabilities

Answer 6

_ASPE uses term “contingent loss” instead of “provision”
_ASPE uses term “likely” instead of “probable” for criteria to record an accrual, which is generally considered to be a higher bar to clear than probable