Interpretation and Application of IPSAS

13 Provisions and Contingencies

Any entity is exposed to a number of uncertainties regarding future events and management and is therefore required to make informed estimates on the outcome of such events. The objective of IPSAS 19 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities, and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing, and amount.

IPSAS 19 applies when accounting for provisions, contingent liabilities, and contingent assets except for:

• Those relating to financial instruments which are carried at fair value;
• Those resulting from an executory contract. In essence, this is a contract that does not have any loss-making potential, for example both parties to the contract have performed their obligations to an equal extent. An example is a service contract with an employee running for, say, three years. At the end of the first year, the employee has completed one year of service and the employer has paid for one year of services; and
• Those specifically covered by other standards, for example provision for pension liabilities.

The following three definitions in Table 13.1 are key in IPSAS 19 (IPSAS 19.18):

Table 13.1 Key definitions in IPSAS 19

Provision	Contingent liability	Contingent asset
In its simplest form a provision is a liability where there is uncertainty over its timing ...