Provisions and contingent liabilities

A provision shall be recognised when:

  1. an entity has a present obligation (legal or constructive) as a result of a past event;
  2. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  3. a reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognised.

An entity shall not recognise a contingent liability.

This is what it is about, make your decision supportable!

Where, as a result of past events, there may be an outflow of resources embodying future economic benefits in settlement of: (a) a present obligation; or (b) a possible obligation 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.
There is a present obligation that probably requires an  outflow of resources.There is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources.There is a possible obligation or a present obligation where the likelihood of an outflow of resources is remote.
A provision is recognised (IAS 37 14)No provision is recognised (IAS 37 27)No provision is recognised (IAS 37 27)
Disclosures are required for the provision (IAS 37 84 – 85).Disclosures are required for the contingent liability (IAS 37 86)No disclosure is required (IAS 37 86)

 

[glossary_exclude]

Provisions and contingent liabilities Provisions and contingent liabilities Provisions and contingent liabilities Provisions and contingent liabilities Provisions and contingent liabilities

Provisions and contingent liabilities

Provisions and contingent liabilities

Where, as a result of past events, there may be an outflow of resources embodying future economic benefits in settlement of: (a) a present obligation; or (b) a possible obligation 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.

[/glossary_exclude]

 

Leave a comment