Part 5: Chapter 1 - Provisions, contingent liabilities and contingent assets (IAS 37)IAS 37 – PROVISIONS, CONTINGENTLIABILITIESANDCONTINGENTASSETSDEFINITIONSThe framework defines liabilities as present obligations of the entity to transfer an economic resource as a result of a past event. Provisions are liabilities with an uncertain timing or amount of the outflows.A present obligation can be a legal obligation or a constructive obligation. A legal obligation is an obligation that derives from a contract, legislation or other operation of law, while a constructive obligations derives from an entity’s actions where by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those liabilities.RECOGNITIONA provision is recognized when -An entity has a present obligation (legal or constructive) as a result of a past event;-It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and-A reliable estimate can be made of the amount of the obligation.MEASUREMENTA provision is measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time.Where the provision being measured involves a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability. However, where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount.The amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation, where the effect of the time value of money is material. The discount rate shall be a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The discount rate shall not reflect risks for which future cash flow estimates have been adjusted.Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.
- Summer '17
- K B
- Balance Sheet, International Financial Reporting Standards