Provisions, Contingencies and Post Balance Sheet Events

Question 1

What are the two standards covering Provisions, Contingencies and Post Balance Sheet Event

Answer 1

IAS37 - Provisions and Contingencies

IAS10 - Post Balance Sheet Events

Question 2

What is the difference between a provision and a contingency?

Answer 2

Provision = Current liability of uncertain timing or amount (unconditional)

Contingency = A possible obligation that arises from past events whose outcome is based on uncertain future events (Conditional) or a possible payment which is not probable or payment account can’t be reliably measured

A contingency should not be included in the financial statement but should be disclosed

Question 3

Should we make a provision for a staff injury before the year end if no claim has been made

Answer 3

Yes, an obliging event has happened and confidence that the company is liable

Question 4

If there is a 90% certainty of success in a claim worth £2m, how should we measure this in the financial statements

Answer 4

The full £2m should be recognised and is not a prior year adjusting event if it was re-measured in the following year

Question 5

If a provision is recognised and then in the following year, the Government say they will assume the liability (i.e. Cladding) how should this be treated?

Answer 5

Not an adjusting event, may need disclosure if material.

Question 6

What if a debtor goes into liquidation post balance sheet date

Answer 6

Should consider signs of the debts impairment at the year end date. Should recognise as a bad debtor with offsetting expense at the balance sheet date.

Also need to consider the going concern of the company on how to report