IFRS/IAS Standards

Question 1

IAS 37

Answer 1

Provisions, Contingent Liabilities and Contingent Assets

Question 2

IAS 37

Provisions, Contingent Liabilities and Contingent Assets

Answer 2

Defines and specifies the accounting for and disclosure of provisions, contingent liabilities, and contingent assets.

Question 3

IAS 37

Provisions

Answer 3

A provision is a liability of uncertain timing or amount. The liability may be a legal obligation or a constructive obligation.

A constructive obligation arises from the entity’s actions, through which it has indicated to others that it will accept certain responsibilities, and as a result has created an expectation that it will discharge those responsibilities.

EG warranty obligations; legal or constructive obligations to clean up contaminated land or restore facilities; and obligations caused by a retailer’s policy to make refunds to customers.

An entity recognises a provision if it is probable that an outflow of cash or other economic resources will be required to settle the provision.

measured at the amount that the entity would rationally pay to settle the obligation at the end of the reporting period and discounted to its present value.

Question 4

Contingent liabilities

Answer 4

Possible obligations whose existence will be confirmed by uncertain future events that are not wholly within the control of the entity. An example is litigation against the entity when it is uncertain whether the entity has committed an act of wrongdoing and when it is not probable that settlement will be needed.

Contingent liabilities also include obligations that are not recognised because their amount cannot be measured reliably or because settlement is not probable.

A contingent liability is not recognised in the statement of financial position. However, unless the possibility of an outflow of economic resources is remote, a contingent liability is disclosed in the notes.

Question 5

Contingent assets

Answer 5

Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events that are not wholly within the control of the entity.

Contingent assets are not recognised, but they are disclosed when it is more likely than not that an inflow of benefits will occur. However, when the inflow of benefits is virtually certain an asset is recognised in the statement of financial position, because that asset is no longer considered to be contingent.