Web Summaries IAS 37: Provisions, Contingent Liabilities and ...

Web SummariesIAS 37: Provisions, Contingent Liabilities and Contingent AssetsIntroductionIAS 37 Provisions, Contingent Liabilities and Contingent Assets was issued in July1998 and is applicable for periods beginning on or after 1 July 1999.IAS 37 prescribes the accounting and disclosure for provisions, contingent liabilitiesand contingent assets, other than:• those resulting from executory contracts, except where the contract is onerous;and• those covered by another Standard, including:− contingent liabilities assumed in a business combinations (IFRS 3 BusinessCombinations);− provisions with regard to• construction contracts (IAS 11 Construction Contracts);• income taxes (IAS 12 Income Taxes);• leases (IAS 17 Leases);• employee benefits (IAS 19 Employee Benefits); and• insurance contracts (IFRS 4 Insurance Contracts).IAS 37 does not apply to financial instruments (including guarantees) within thescope of IAS 39 Financial instruments: Recognition and Measurement.Summary of IAS 37A provision is a liability of uncertain timing or amount. Examples of provisions are:warranty obligations; legal or constructive obligations to clean up contaminated landor restore facilities; and a retailer’s policy to refund customers.A provision is recognised when:• an entity has a present obligation (legal or constructive) as a result of a past event;• it is probable that an outflow of economic benefits will be required to settle theobligation; and• a reliable estimate can be made of the amount of the obligation.A constructive obligation arises from the entity’s actions, through which it hasindicated to others that it will accept certain responsibilities, and as a result hascreated an expectation that it will discharge those responsibilities.The amount recognised as a provision is the best estimate of the expenditure requiredto settle the obligation at the balance sheet date. Provisions are reviewed at eachbalance sheet date and adjusted to the current best estimate. A provision is used onlyfor expenditures for which the provision was originally recognised.Provisions are not recognised for future operating losses. If the entity has a contractthat is onerous, the present obligation under the contract is recognised as a provision.A constructive obligation to restructure arises only when an entity:• has a detailed formal plan for the restructuring; and• has raised a valid expectation in those affected that it will carry out therestructuring by starting to implement that plan or announcing its main features tothose affected by it.

Web SummariesIAS 37: Provisions, Contingent Liabilities and Contingent AssetsA contingent liability is not recognised, but is disclosed unless the possibility of anoutflow of resources is remote.A contingent asset is not recognised, but is disclosed when an inflow of economicbenefits is probable.IAS 37 specifies disclosures about provisions, contingent liabilities and contingentassets.