What is an obligating event in accounting?
An obligating event is an event that creates a legal or constructive obligation and, therefore, results in an entity having no realistic alternative but to settle the obligation. [ IAS 37.10]
When should a contingent asset be Recognised?
A contingent asset becomes a realized asset recordable on the balance sheet when the realization of cash flows associated with it becomes relatively certain. In this case, the asset is recognized in the period when the change in status occurs. Contingent assets may arise due to the economic value being unknown.
What is probable under IFRS?
Probable in this context means ‘likely to occur’, which is a higher threshold than IFRS. In many cases, this difference will not change the practical outcome and the threshold will be met under both frameworks. Like IFRS the amount can be estimated reasonably.
What is the difference between provision and accrual?
Accruals involve recording of expenses that have been incurred but payment for which is yet to be made by the transacting entity. Provision involves recording of expenses or losses that have not yet been incurred but they may be incurred on the occurrence or non-occurrence of certain events.
Why are contingent assets not Recognised?
Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future events that are not wholly within the control of the entity. Contingent assets are not recognised, but they are disclosed when it is more likely than not that an inflow of benefits will occur.
What is a FAS 5?
FAS 5 is an underlying source of accounting guidance factoring into the calculation of the allowance for loan and lease losses (ALLL), and it applies to entities not yet subject to CECL. Institutions using FAS 5 and FAS 114 need to implement CECL for 2023 or earlier, unless they are large SEC filers.
How is a contingent liability reported under IFRS?
A contingent liability is not recognised in the statement of financial position. However, unless the possibility of an outflow of economic resources is remote, a contingent liability is disclosed in the notes.
What are four potential treatments for contingent liabilities?
Four Potential Treatments for Contingent Liabilities
| Journalize | Note Disclosure | |
|---|---|---|
| Probable and estimable | Yes | Yes |
| Probable and inestimable | No | Yes |
| Reasonably possible | No | Yes |
| Remote | No | No |