332 / 488
Chapter
29 /
Provisions, Contingent Liabilities, and Contingent Assets (lAS 37)
323
4.7.2 An entity should also disclose, for eac h class of provision
• A brief description of the nature of the obliga tion and the ex pected tim ing of any resulting
outflows of eco nomic benefits
• An ind ication abo ut the uncert ainties abo ut the amount and timing of those outflows (a nd ,
where necessary, major ass umptions made co nce rning future events)
• The amount of any expected reimbursement , stating the amo unt of any asset that has been
recogn ized for that expected reimbursement
4.7.3 In ext remely rare ci rcumstance s, when disclosure of any or all th is information is con sid–
e red to be seriously prejudicial
to
the pos ition of the entity in a di spute with other parti es on the
subj ect matte r of the provision , an entity need not disclose the information but should di sclose the
ge neral nature of the dispute, together with the fact that, and reason why, the information has not
been di sclosed .
5. CONTINGENT LIABILITIES
5.1 Possible Obligation
5.1.1 In orde r to recognize a provision (and record it on the books as opposed to only di sclosing it
in foo tnotes) , certain condition s (as discussed earlier) need to be satisfied. Howev er, when one of
the prescribed conditions is not sa tisfied, then a provision cannot be recognized. It is then a
contingent liability and needs to be disclosed in footnotes, unle ss the probability of the outflow
embodying economic benefits is remote (in which case it does not even have to be disclosed).
5.1.2 A continge nt liability is a
possible obligation
arisin g from past events, the out come of
which will be co nfirmed only on the occ urrence or nonoccurrence of one or more uncert ain future
eve nts. A continge nt liability is also a
present obligation that is not recogni zed,
either becau se it is
not probable that an outflow of resources will be required to se ttle an obligation or the amount of
the obliga tion ca nnot be measu red with sufficient reliability.
5.1.3 Once recognized as a co ntinge nt liability, an entity should co nt inua lly assess the probab ility
of the outflow of the future economic benefits relatin g to that co ntinge nt liabil ity. If the probability
of the outflow of the future economic benefits change s to more likely than not , the n the co ntinge nt
liability may develop into an act ual liabilit y and would need to be recognize d as a provision.
5.2 Disclosures
5.2.1 Unless the possibility of any outflow is remote, for eac h class of co ntinge nt liab ility an en–
tity should disclose at the balance sheet date a brief descripti on of the natu re of the co ntinge nt li–
ab ility and, where practicable
• An estimate of its financial effect;
• An ind ication of the uncert ain ties relatin g to the amount or tim ing of any outflow;
and
• Th e possibility of any reimbursemen t.
Where any of the information required above is not di sclo sed becau se it is not practicable to do so,
the fact should be disclo sed.
5.2.2 In extremely rare circumstances, when disclosure of any or all the abo ve information is
co nside red to be seriously prejudicial to the positi on of the entity in a di spute with other parties on
the subj ec t matter of the contingent liability, an entity need not di sclose the information but should
disclose the general nature of the dispute, together with the fact that , and reason why, the informa–
tion has not been disclosed.
Case Study 5
Facts
Amazon Inc. has been sued for following three alleged infringements of law:
(I )
Unauthorized use of a trademark; the claim is for $100 million
(2) Nonpayment of end-of-service severance pay and gratuity to 5,000 employees who were termi–
nated without Amazon Inc. giving any reason; the class action lawsuit is claiming $3 million