📖 Overview
This standard defines when to recognize provisions (liabilities of uncertain timing or amount) and how to measure them. It also prescribes accounting for contingent liabilities (not recognized, only disclosed) and contingent assets (not recognized until virtually certain).
🎯 Scope
This standard applies to:
- Provisions: Liabilities of uncertain timing or amount.
- Contingent Liabilities: Potential liabilities depending on an uncertain future event.
- Contingent Assets: Potential assets depending on an uncertain future event.
Does not apply to executory contracts unless they are onerous.
⚙️ Key Principles
**Recognition Conditions for a Provision:**
1. Present obligation (legal or constructive) from a past event.
2. Probable that settlement will require an outflow of resources.
3. The obligation can be reliably estimated.
**Contingent Liability**: Not recognized, only disclosed (unless outflow is remote).
**Contingent Asset**: Not recognized, only disclosed when inflow is probable.
📏 Measurement
**Measuring a Provision:**
- Best estimate of the amount required to settle the obligation at the balance sheet date.
- If the time value of money is material, the amount is discounted.
- Discount rate: Pre-tax rate reflecting current market risks.
**Range of Estimates**: The most likely point is used.
**Onerous Contracts**: Measured as the difference between contract execution cost and expected revenues.
✅ Recognition
**Recognition of a Provision:**
- Recognized when the three conditions are met.
- The provision is reviewed at each balance sheet date and adjusted.
**Non-recognition of Contingent Liability:** Not recorded in the books.
**Non-recognition of Contingent Asset:** Not recorded in the books until virtually certain.
📊 Presentation
**On the Statement of Financial Position:**
- Provisions appear as liabilities (current or non-current based on expected settlement timing).
**On the Income Statement:**
- Provisions appear within operating expenses.
**Note Disclosures:**
- Nature of the provision.
- Carrying amount at beginning and end of period.
- Increases and decreases during the period.
- Expected cash flows and timing.
- Contingent liabilities and assets (description, estimate, uncertainty).
📝 Disclosure Requirements
Disclosures required:
- Nature of each provision.
- Carrying amount at beginning and end of period.
- Additional provisions made during the period.
- Amounts used (paid) during the period.
- Unused amounts reversed during the period.
- Expected timing of cash flows.
- Uncertainties about amount or timing.
- Contingent liabilities (description, financial estimate).
- Contingent assets (description, financial estimate if possible).
🔗 Related Standards
IFRS 3 (Business Combinations), IFRS 15 (Revenue from Contracts with Customers), IAS 12 (Income Taxes)