Provisions, Contingent, Liabilities And Contingent Assets

Defined terms. Objective. Connection between Provisions and contingent liabilities. Contingent assets. Practicality of Provisions, Contingent Liabilities and Contingent Assets. Example. Example of Contingent liability. Example of contingent assets.

Write short summary about IAS 37 Provisions, Contingent Liabilities and Contingent Assets and

see how it works in practicallity . PURPOSE The purpose of the standard to ensure that the provisions, contingent liabilities and contingent assets are subject to appropriate recognition criteria and measurement basis of financial reporting information in the notes is sufficient and users to understand their nature, timing and extent.

Provisions for recognition may be based on a legal obligation that arises from past events. Past events, which may result in legal liability may include the following:

Court and other bodies to take decisions which confirm that the event was that it really led to a legal commitment. 

Companies major managerial staff to take decisions, which must be fulfilled.

Spend laws, such as the Environmental Protection Act, Consumer Protection Act and other legislation, for which the company may incur costs (fines, environmental management, has had its damage, oil installation or a nuclear power plant closing costs, etc.).

 Incurring liabilities, the company has certain obligations, such as selling goods and providing the guarantee, the company assumes the obligation to repair or replace them, if they fail, the damage done to the environment, the company is obliged by law to compensate.

Practically always clear whether a past event has led to a legal commitment. If it is unclear whether or not this event has been, and the resulting obligation, for example, the court examined whether a past action could lead to a legal obligation, taking into account all available evidence (contracts, judgments rendered issued by the law, the opinion of experts and so on.) on the last day of the reporting period, the company must decide whether there is a legal obligation. Events after the last day of the reporting period may provide more evidence and help the company to decide whether or not an event of the past has led to a legal commitment. Provisions may be based on the recognition and irrevocable commitment, that such a unilateral commitment to the company, which appears on the company's actions and for the interested parties doubt it will be carried out. Past events influencing constructive, may include the following:

the provisions which are recognized as liabilities (assuming that it is possible to measure reliably), since it is a present obligation and it is likely that the need to provide economic benefits outflow of resources to meet them;

contingent liabilities commitments are not recognized because they are either:

i) the potential liability. In addition, it must be confirmed whether the entity has a present obligation, which would require resources embodying economic benefits payments;or

ii) present obligations that do not meet this standard the recognition criteria (because either it is not expected to provide economic benefits outflow of resources will have to fulfill the obligations, or may not be sufficient to reliably estimate the amount of obligations).

 32 Contingent assets usually arise from unplanned or other unexpected events, for which the entity can gain economic benefit. An example is the claim that an entity constitutes a court and the outcome is uncertain. 

33 A contingent asset is not recognized in the financial statements that it would not be recognized as income, which will never be collected. But when it becomes clear that the income will be received related asset is no longer contingent and its recognition is appropriate.