International GAAP 2013: Generally Accepted Accounting Principles under International Financial Reporting Standards

Chapter 29

Provisions, contingent liabilities and contingent assets

1 Introduction

1.1 Background

1.2 Interpretations related to the application of IAS 37

1.2.1 IFRIC 1

1.2.2 IFRIC 3

1.2.3 IFRIC 5

1.2.4 IFRIC 6

1.3 Terms used in IAS 37

2 Objective and scope of IAS 37

2.1 Objective

2.2 Scope of IAS 37

2.2.1 Items outside the scope of IAS 37

2.2.1.A Executory contracts, except where the contract is onerous

2.2.1.B Items covered by another standard

2.2.2 Provisions compared to other liabilities

2.2.3 Distinction between provisions and contingent liabilities

3 Recognition

3.1 Determining when a provision should be recognised

3.1.1 ‘An entity has a present obligation (legal or constructive) as a result of a past event’

3.1.2 ‘It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation’

3.1.3 ‘A reliable estimate can be made of the amount of the obligation’

3.2 Contingencies

3.2.1 Contingent liabilities

3.2.2 Contingent assets

3.2.3 How probability determines whether to recognise or disclose

3.3 Recognising an asset when recognising a provision

4 Measurement

4.1 Best estimate of provision

4.2 Dealing with risk and uncertainty in measuring a provision

4.3 Discounting the estimated cash flows to a present value

4.3.1 Real v. nominal rate

4.3.2 Adjusting for risk and using a government bond rate

4.3.3 Own credit risk is not taken into account

4.3.4 Pre-tax discount rate

4.3.5 Unwinding of the discount

4.3.6 The effect of changes in interest ...