International Financial Reporting Standards_guide.pdf

Chapter 21 Provisions, Contingent Liabilities, and Contingent Assets (IAS 37) 243
FIGURE 21.1 Decision Tree for Identifying Provisions, Contingent Liabilities, and Contingent Assets
Start
Present obligation
as a result of an
obliging event
NO
Possible obligation?
NO
YES
YES
Probable outflow?
NO
Remote?
YES
YES
NO
Reliable estimate?
NO (rare)
YES
Provide
Source: IASCF, 2008, p. 1,849.
Disclose
contingent liability
Do nothing
21.6 COMMENTARY
21.6.1 This standard, although relatively simple, is often not easy to apply in practice,
mainly because of the subjectivity relating to the identification and measurement of provisions
and contingent liabilities. The following judgments are required in practice:
■ the identification of constructive obligations;
■ the identification and measurement of onerous contracts; and
■ the probability of an inflow or outflow occurring.
21.6.2 In 2005, the IASB issued an exposure draft of a standard to replace IAS 37. After
reviewing the responses to this exposure draft, the IASB reached a decision on most of the
principles to be included in the new standard. However, in the light of comments received,