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Hi Mike,
A query i hope you can help me with
Per IAS 37, a provision is recognised , when along with other criteria, a past event has occured which gives rise to a present obligation
This “past event”….it is always an action or inaction by the reporting client, like signing a contract or supplying faulty goods?? What about the classic case of the law requiring the fitting of smoke filters as quoted in IAS 37, where if when the dates passes by which the filters have to be fitted, the client can still not create a provision for fitting the filters…does this mean that the passing of a law is a not a “past event” giving rise to a present obligation??
Thanks
LiamThe smoke filter example is not the subject of a provision because presumably the client could close down their operations and thus avoid the expense of fitting smoke alarms.
The lecture example of new law being passed requiring mining companies to clear up their operating sites creates an obligation because, even though the miners could abandon their mining operations, the site would still have to be cleared up
Ok?
I think the past event is always an action by the reporting entity. However, whether or not that action is recognised as a past event I.e. Factory polluting nearby river depends.
In the smoke detector example, mike is right as the entity has a way of avoiding a provision by closing shop. Thus, whether or not a law is passed, the entity can avoid the situation where it has no choice but to create a provision.
In the mining example, the passing of a law is not a past event. Rather, the passing of the law has made the pollution a past event in terms of recognising that a provision is needed NOW for the polluting that was done BEFORE.
Hope this helps!
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