IAS 37: Provisions, contingent assets, and

contingent liabilities

Introduction

► This Standard defines provisions as liabilities of uncertain timing or

amount.
► In some countries the term ‘provision’ is also used in the context of items
such as depreciation, impairment of assets and doubtful debts: these are
adjustments to the carrying amounts of assets and are not addressed in
this Standard.

Debit side of the recognition

► Other Standards specify whether expenditures are treated as assets or as

expenses.
► Accordingly, this Standard neither prohibits nor requires capitalization of
the costs recognized when a provision is made.

Example: IAS 16 requires the cost of an item of PP&E to include the initial
estimate of the costs of dismantling and removing an asset and restoring the site
on which it is located

IAS 37: Definitions

A liability:

Is a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits

A provision

a liability of uncertain timing or amount.

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Recognition

► Provision:
► is recognised when, and only when:
► an entity has a present legal or constructive obligation to
transfer economic benefits as a result of past events; and
► it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation;
and
► a reliable estimate of the obligation can be made
► Contingent assets and liabilities
► not recognised but might be disclosed

Probable outflow

► An outflow of resources or other event is regarded as probable if the event

is more likely than not to occur,
► ie the probability that the event will occur is greater than the
probability that it will not.
► Where it is not probable that a present obligation exists, an entity
discloses a contingent liability, unless the possibility of an outflow of
resources embodying economic benefits is remote

Contingent liability

► Not recognized, only disclosed unless remote

► A possible obligation that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity; or
► A present obligation that arises from past events but is not recognized
because:
► It is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; or
► The amount of the obligation cannot be measured with sufficient
reliability.

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 Contingent asset

► This is defined as a possible asset that arises from past events and whose
existence will be confirmed only by the occurrence or non-occurrence of
one or more future events not wholly within the control of the enterprise.
► Where an inflow of economic benefits is probable, disclose:
► A brief description of the nature of the contingent asset
► An estimate of its financial effect (if it is practicable)

Accruals

► Are liabilities to pay for goods or services that have been received or
supplied but have not been paid, invoiced or formally agreed with the
supplier, including amounts due to employees (for example, amounts
relating to accrued vacation pay).
► Although it is sometimes necessary to estimate the amount or timing of
accruals, the uncertainty is generally much less than for provisions.

Recognition flowchart

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Measurement of a provision

► The amount recognised should be the best estimate of the expenditure

required to settle the present obligation at the balance sheet date.
► The estimates of outcome and financial effect are determined by the
judgment of the management of the entity, supplemented by experience of
similar transactions and, in some cases, reports from independent
experts.

Changes in provisions

► Provisions shall be reviewed at the end of each reporting period and

adjusted to reflect the current best estimate.
► If it is no longer probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, the
provision shall be reversed.
► Where discounting is used, the carrying amount of a provision increases in
each period to reflect the passage of time.
► This increase is recognised as borrowing cost.

Application Guidance - Future Operating Losses

► Future operating losses

► Provision not recognised:

► the losses do not arise out of a past event; and

► Expectation of future losses may indicate impairment

Application guidance – Onerous Contract

► Onerous contract

► A contract in which the unavoidable costs of meeting the

obligations exceed the economic benefits expected to be received
from it

► A provision is recognised

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IFRS 8 Operating Segments
Objective
► IFRS 8 objective is that an entity should disclose information to enable
users of its financial statements to evaluate the nature and financial
effects of the types of business activities in which it engages and the
economic environments in which it operates.

Scope

► FRS 8 applies to the annual and interim financial statements of an entity. It

applies to the separate or individual financial statements of an entity and
to the consolidated financial statements of a group with a parent:

► Whose debt or equity instruments are traded in a public market or

► That files, or is in the process of filing, its (consolidated) financial

statements with a securities commission or other regulatory
organization for the purpose of issuing any class of instruments in a
public market.

Key Definitions

Business Segment

• Is a portion of a larger company that accounts for more than

10% of the company’s revenues, profits / losses, or assets and
is distinguishable from the company’s other lines of business
in terms of the risk and return characteristics of the segment.

Geographic Segment

• Also identified when meet the size criterion above and the
geographic unit has a business environment that is different
from that of other segments or the reminder of the company’s
business.

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Reportable segments

► IFRS 8 requires an entity to report financial and descriptive information

about its reportable segments. Reportable segments are operating
segments or aggregations of operating segments that meet specified
criteria:

► 10% Revenue

► 10% Profit / Loss

► 10% Assets

Required disclosures

► General information about how the entity identified its operating

segments and the types of products and services from which each
operating segment derives its revenues.

► Information about the reported segment profit or loss, and the basis of
measurement.

► Analyses of revenues and certain non-current assets by geographical

area.

► Information about transactions with major customers.

Example of disclosure

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IAS 34 Interim Financial Reporting

Definitions

► Interim period is a financial reporting period shorter than a full financial

year

► Interim financial report means a financial report containing either a

complete set of financial statements or condensed financial statements

Scope

► This Standard does not mandate which entities should be required to

publish interim financial reports, how frequently.

► However, governments, securities regulators, stock exchanges, and

accountancy bodies often require entities whose debt or equity securities
are publicly traded to publish interim financial reports.

► This Standard applies if an entity is required or elects to publish an interim

financial report in accordance with International Financial Reporting
Standards.

Content of an interim financial report

► The entity has the choice to present:

1. a complete set of financial statements (as described in IAS 1)

2. condensed financial statements and selected explanatory notes.

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Minimum components of an interim financial report

► An interim financial report shall include, at a minimum, the following

components:

1. Condensed statement of financial position;

2. Condensed statement of comprehensive income

3. Condensed statement of changes in equity;

4. Condensed statement of cash flows; and

5. Selected explanatory notes.

Form and content of interim financial statements

► If an entity publishes a set of condensed financial statements in its interim

financial report, those condensed statements shall include, at a minimum,
each of the headings and subtotals that were included in its most recent
annual financial statements and the selected explanatory notes as
required by this Standard.

► Additional line items or notes shall be included if their omission would

make the condensed interim financial statements misleading.

Materiality

► In deciding how to recognise, measure, classify, or disclose an item for

interim financial reporting purposes, materiality shall be assessed in
relation to the interim period financial data.

Recognition and measurement

► An entity shall apply the same accounting policies in its interim financial
statements as are applied in its annual financial statements, except for
accounting policy changes made after the date of the most recent annual
financial statements that are to be reflected in the next annual financial
statements.

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Notes included

► A statement that the policies applied are the same as those in the annual
financial statements, or a description of the nature and effect of any
changes

► Comments about the seasonal or cyclical nature of interim operations

► The nature and amount of items of unusual nature, size, or incidence

► The nature and amount of changes in estimates

► Movements in debt and equity securities

► Dividends paid for each class of share

► Segment revenue and results

► Any material subsequent events not reflected in the interim financial

statements

► The effect of any changes in the composition of the entity

► Any changes in contingent assets and contingent liabilities since the last
annual balance sheet date

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IAS 10: Events After the Balance Sheet Date
Objective

► The objective of this Standard is to prescribe:

1. When an entity should adjust its financial statements for events after
the reporting period; and

2. The disclosures that an entity should give about the date when the
financial statements were authorised for issue and about events after
the reporting period.

► The Standard also requires that an entity should not prepare its financial
statements on a going concern basis if events after the reporting period
indicate that the going concern assumption is not appropriate.

Events After the Balance Sheet Date

► Such events are defined as ‘those events, favourable and unfavourable,

that occur between the balance sheet date and the date when the financial
statements are authorised for issue.’

► Two types of events are identified:

► Adjusting events – those that provide evidence of conditions that
existed at the balance sheet date
► Non-adjusting events – those that are indicative of conditions that
arose after the balance sheet date

Adjusting events

► These give rise to adjustments to the amounts recognised in the financial

statements
► Examples may include:
► The resolution/settlement of litigation
► Information about the impairment of assets
► Debtor bankruptcy
► The determination of bonus payments
► The discovery of fraud or errors

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Non-adjusting events

► These do not give rise to adjustments to the amounts recognised in the

financial statements, but may require disclosure.
► Examples include:
► The decline in market value of investments
► Movements in exchange rates
► a major business combination after the reporting period or
disposing of a major subsidiary;
► announcing a plan to discontinue an operation;
► major purchases, disposal or expropriation of assets,
► classification of assets as held for sale in accordance with IFRS 5;
► Any dividends declared after the balance sheet date, but before the
financial statements are authorised for issue are not recognised as
a liability at the balance sheet date are disclosed in the notes to the
financial statements

Disclosures

► The date when the financial statements were authorised for issue, and
who gave that authorisation
► Where a non-adjusting event is material, non-disclosure could influence
the economic decisions of users taken on the basis of the financial
statements. Accordingly, disclose:
► The nature of the event
► An estimate of its financial effect, or a statement that such an
estimate cannot be made

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IFRS 6: Exploration for and evaluation of mineral
resources

Elements of cost of exploration and evaluation assets

The following are examples of expenditures that might be included in the initial
measurement of exploration and evaluation assets:

► Acquisition of rights to explore

► geological, geochemical and geophysical studies

► Exploratory drilling

► Trenching

► Activities in relation to evaluating the technical feasibility and commercial

viability of extracting a mineral resource.

Measurement

► At recognition, exploration and evaluation assets are measured at cost.

► After recognition, an entity applies either the cost model or the revaluation
model to the exploration and evaluation assets. (Refer to IAS 16 Property,
Plant and Equipment and IAS 38 Intangible Assets for guidance.)

Presentation

An entity classifies exploration and evaluation assets as tangible or intangible according

to the nature
of the assets acquired and applies the classification consistently.

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Required disclosures

► IFRS 6 requires disclosure of information that identifies and explains the

amounts recognised in its financial statements arising from the exploration
for and evaluation of mineral resources, including:

► a. its accounting policies for exploration and evaluation expenditures

including the recognition of exploration and evaluation assets

► b. the amounts of assets, liabilities, income and expense and operating

and investing cash flows arising from those assets.

► Exploration and evaluation assets are disclosed as a separate class of assets in

the disclosures required by IAS 16 Property, Plant and Equipment or IAS 38
Intangible Assets.

Impairment

► IFRS 6 requires entities recognising exploration and evaluation assets

to perform an impairment test on those assets when facts and
circumstances suggest that the carrying amount of the assets may exceed
their recoverable amount.

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