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Hi,
Do we recognise contingent liabs when outflow of economic resource is probable or remote?IAS web says remote but thought it was when probable.
Thanks
On the occasion of calculating the fair value of net assts of an entity that is being acquired, then the ‘normal’ rules of remote / possible / probable and virtually certain are thrown out of the window!
If it’s at all possible include it as though it were a cast-iron certainty
OK?
And if it is not an entity being acquired? Just a contingent liability we may be liable for?
Normal rules apply – it’s only abnormal on the occasion of an acquisition
OK?
Yes. So IAS plus website says recognise when outflow of economic resource is remote. I thought we ignore when remote and only recognise when probable?
As for contingent assets recognise when virtually certain.
What is the correct way please?
Recognise as a liability when the outcome is probable ie >50%
For assets, recognise only when the outcome is virtually certain ie >95%
IASPLUS website cannot possibly say “recognise when remote” except in the circumstance of an acquisition
Read it again and you’ll find that, hopefully, I’m correct!
https://www.iasplus.com/en/standards/ias/ias37
It definitley does. See contingent liability paragraph. Doesnt specify if it’s an acquisition.
Are you referring to the sentence “It requires that entities should not recognise contingent liabilities – but should disclose them unless the possibility of an outflow of economic resources is remote (IAS 37.86)”?
If that’s the cause of your concerns, I suggest that you are misinterpreting that sentence
The meaning of that sentence is this (with resultant implications in my brackets)
(Recognise as provisions those liabilities where the probability of an outflow of economic resources is probable)
Don’t recognise as a provision where the probability of an outflow of economic resources is less than 50% (so is classed as only “possible” and not “probable”) and instead disclose as a contingent liability (the matter by way of note to the financial statements) unless …
… unless the possibility of an outflow of economic resources is remote (in which case we should neither provide as a liability nor disclose as a contingent liability)
Does that make more sense to you?
Ahhh yes. Definitley misinterpreted it so all its saying is that we disclose if possible unless outflow is remote in which case we do nothing? Ie do not disclose or recognise?
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