International Financial Reporting Standards_guide.pdf

CHAPTER 21
Provisions, Contingent Liabilities,
and Contingent Assets (IAS 37)
21.1 OBJECTIVE
The main objective of IAS 37 is to provide guidance for recognition of provisions and the
disclosure of contingent liabilities. Provisions are recognized only when established criteria
of reliability of the obligation are met. In contrast, contingent liabilities and assets are
not recognized but should be disclosed so that such information is available in the financial
statements.
21.2 SCOPE OF THE STANDARD
IAS 37 prescribes the appropriate accounting treatment as well as the disclosure requirements
for all provisions, contingent liabilities, and contingent assets to enable users to understand
their nature, timing, and amount.
The standard sets out the conditions that must be fulfilled for a provision to be recognized.
It guides the preparers of financial statements to decide when, with respect to a specific obligation,
they should:
■ provide for it (recognize it);
■ only disclose information; or
■ disclose nothing.
IAS 37 is applicable to all entities when accounting for provisions and contingent liabilities
or assets, except those resulting from:
■ financial instruments carried at fair value (IAS 39, see chapter 17);
■ executory contracts (for example, contracts under which both parties have partially
performed their obligations to an equal extent)
■ insurance contracts with policyholders (IFRS 4, see chapter 38); and
■ events or transactions covered by any another IAS (for example, income taxes and lease
obligations).
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