1. Contingent Liabilities
1.1. Definition
1.1.1. A possible obligation depending on whether some uncertain future event occurs.
1.1.2. Or, a present obligation but payment is not probable or the amount cannot be measured reliably
1.2. Accounting treatment
1.2.1. Entities should not recognise contingent liabilities – but should disclose them, unless the possibility of an outflow of economic resources is remote.
1.3. Nature of disclosures
1.3.1. Nature of contingent liability
1.3.2. Estimate of financial effect
1.3.3. Uncertainties relating to amount or timing
1.3.4. Possibility of reimbursment
1.4. Need for disclosure
1.4.1. Make users aware of potential adverse impact on cash flows/profit
2. Contingent Assets
2.1. Definition
2.1.1. a possible asset that arises from past events, and
2.1.2. whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
2.2. Accounting treatment
2.2.1. Virtually certain (> 90%)
2.2.1.1. Recognise asset
2.2.2. Probable (50 - 90%)
2.2.2.1. Disclosure
2.2.3. Possible (20 - 50%)
2.2.3.1. Do nothing
2.2.4. Remote (< 20%)
2.2.4.1. Do nothing
2.3. Nature of disclosures
2.3.1. Brief description
2.3.2. Estimate of financial effect
2.4. Need for disclosure
2.4.1. Make users aware of potential adverse impact on cash flows/profit
3. Overview
3.1. IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting for provisions, together with contingent assets (possible assets) and contingent liabilities
3.2. IAS 37 was issued in September 1998 and is operative for periods beginning on or after 1 July 1999.
4. Scope
4.1. IAS 37 excludes obligations and contingencies arising from
4.1.1. financial instruments that are in the scope of IAS 39
4.1.2. non-onerous executory contracts
4.1.3. insurance contracts
4.2. Items covered by another IFRS.
4.2.1. IAS 11 Construction Contracts
4.2.2. IAS 12 Income Taxes
4.2.3. IFRS 16 Lease
4.2.4. IAS 19 Employee Benefits
5. Provision
5.1. Definition
5.1.1. Provision: a liability of uncertain timing or amount.
5.2. Recognition
5.2.1. An entity must recognise a provision if, and only if:
5.2.1.1. a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),
5.2.1.2. payment is probable ('more likely than not'), and
5.2.1.3. the amount can be estimated reliably.
5.3. Measurement
5.3.1. The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Which means:
5.3.1.1. Provisions for one-off events are measured at the most likely amount.
5.3.1.2. Provisions for large populations of events are measured at a probability-weighted expected value.
5.3.1.3. Discount if time value of money is material.
5.3.1.4. Accounting treatment
5.3.1.4.1. Create/Increase a provision
5.3.1.4.2. Decrease a provision
5.3.1.4.3. To use a provision
5.4. Remeasurement of provisions
5.4.1. Review and adjust provisions at each balance sheet date
5.4.2. If an outflow no longer probable, provision is reversed.