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Provisions Reviewer

Contingent liabilities and assets arise from past events where future confirmation depends on uncertain future events. Contingent liabilities are unrecognized obligations where outflows are not probable or cannot be reliably measured. Provisions are recognized liabilities of uncertain timing or amount for obligations from past events. Provisions are measured at best estimates considering risks, uncertainties, and present value. Disclosures include descriptions of obligations and uncertainties, and reconciliation of provision balances.

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Kevin Santiago
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323 views2 pages

Provisions Reviewer

Contingent liabilities and assets arise from past events where future confirmation depends on uncertain future events. Contingent liabilities are unrecognized obligations where outflows are not probable or cannot be reliably measured. Provisions are recognized liabilities of uncertain timing or amount for obligations from past events. Provisions are measured at best estimates considering risks, uncertainties, and present value. Disclosures include descriptions of obligations and uncertainties, and reconciliation of provision balances.

Uploaded by

Kevin Santiago
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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PROVISIONS, CONTINGENT LIABILITIES AND on the part of those other parties that it will discharge

CONTINGENT ASSETS those responsibilities.

Contingent Asset is a possible asset that arises from CONTINGENT LIABILITY IS A PRESENT OBLIGATION
past events, and whose existence will be confirmed only THAT ARISES FROM PAST EVENTS, BUT IS NOT
by the occurrence or non-occurrence of one or more RECOGNIZED BECAUSE:
uncertain future events not wholly within the control of 1. It is not probable that an outflow of resources
the entity. embodying economic benefits or service potential will
be required to settle the obligation
Contingent Liability is a possible obligation that arises
2. The amount of the obligation cannot be measured
from past events, and whose existence will be
with sufficient reliability.
confirmed only by the occurrence or non-occurrence of
one or more uncertain future events not wholly within WAYS OF RESTRUCTURING:
the control of the entity 1. The scope of an entity’s activities
2. The manner in which those activities are carried out.
Executory Contracts are contracts under which neither
party has performed any of its obligations, or both EXAMPLES OF PROVISIONS:
parties have partially performed their obligations to an 1. Onerous contracts
equal extent. 2. Restructuring provisions
3. Warranties
Legal Obligation is an obligation that derives from
4. Refunds
contract (through its explicit or implicit terms),
5. Site restoration
legislation or other operation of law.
CRITERIA FOR RECOGNITION OF PROVISION:
Obligating Event is an event that creates a legal or
1. An entity has a present obligation (legal or
constructive obligation that results in an entity having
constructive) as a result of a past event
no realistic alternative to settling that obligation.
2. It is probable that an outflow of resources embodying
Onerous Contract is a contract for the exchange of economic benefits or service potential will be required
assets or services in which the unavoidable costs of to settle the obligation
meeting the obligations under the contract exceed the 3. A reliable estimate can be made of the amount of the
economic benefits or service potential expected to be obligation.
received under it.
MEASUREMENT OF PROVISION:
Provision – is a liability of uncertain timing or amount. 1. Best Estimate
2. Risks and Uncertainties
Restructuring is a program that is planned and 3. Present Value
controlled by management, and materially changes 4. Future Events
Reimbursement shall be treated as a separate asset 5. Expected Disposal of Assets

A contingent liability is disclosed unless possibility of an APPLICATION OF THE RECOGNITION AND


outflow of resources embodying economic benefits or MEASUREMENT RULES:
service potential is remote. 1. Future Operating Net Deficits
2. Onerous Contracts
A contingent asset is either disclosed or the related 3. Restructuring
asset is recognized.
AN ENTITY SHALL ALSO DISCLOSE THE FOLLOWING FOR
CONSTRUCTIVE OBLIGATION – IS AN OBLIGATION EACH CLASS OF PROVISION:
THAT DERIVES FROM AN ENTITY’S ACTIONS WHERE 1. The carrying amount at the beginning and end of the
1. By an established pattern of past practice, published period
policies, or a sufficiently specific current statement, the 2. Additional provisions made in the period, including
entity has indicated to other parties that it will accept increases to existing provisions
certain responsibilities 3. Amounts used (that is, incurred and charged against
2. As a result, the entity has created a valid expectation
the provision) during the period
4. Unused amounts reversed during the period; and
5. The increase during the period in the discounted
amount arising from the passage of time and the effect
of any change in the discount rate.
6. A brief description of the nature of the obligation and
the expected timing of any resulting outflows of
economic benefits or service potential
7. An indication of the uncertainties about the amount
or timing of those outflows. Where necessary to provide
adequate information, an entity shall disclose the major
assumptions made concerning future events
8. The amount of any expected reimbursement, stating
the amount of any asset that has been recognized for
that expected reimbursement.
9. A brief description of the nature of the obligation and
the expected timing of any resulting outflows of
economic benefits or service potential
10. An indication of the uncertainties about the amount
or timing of those outflows. Where necessary to provide
adequate information, an entity shall disclose the major
assumptions made concerning future events
11. The amount of any expected reimbursement, stating
the amount of any asset that has been recognized for
that expected reimbursement.
12. Unless the possibility of any outflow in settlement is
remote, an entity shall disclose, for each class of
contingent liability at the reporting date, a brief
description of the nature of the contingent liability and,
where practicable: a) An estimate of its financial effect;
b) An indication of the uncertainties relating to the
amount or timing of any outflow; and c) The possibility
of any reimbursement.
13. Where an inflow of economic benefits or service
potential is probable, an entity shall disclose a brief
description of the nature of the contingent assets at the
reporting date, and, where practicable, an estimate of
their financial effect.
14. Unless the possibility of any outflow in settlement is
remote, an entity shall disclose, for each class of
contingent liability at the reporting date, a brief
description of the nature of the contingent liability and,
where practicable: a) An estimate of its financial effect;
b) An indication of the uncertainties relating to the
amount or timing of any outflow; and c) The possibility
of any reimbursement.
15. Comparative information is not required.

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