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Under IFRS 9, when payment to an instrument holder is contingent on the occurrence of an uncertain event in the future that is beyond the control of both the entity and the holder, then the instrument is classified as a financial liability.
Under IAS 37, it is stated if there is a possible obligation arising from past event whose occurrence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the entity, then a contingent liability is disclosed.
Since the treatments are different between the two where the former has to be recognized in the financial statements whereas the latter only being disclosed, what is the key that differentiate the two?
Is it the probability of making payment? or is it the existence of a contract?Thank you in advance!
IFRS 9 – there is a contract – end of story – we are recognising liability for standard contractual obligation.
IAS 37 – normally there is no ‘contract’ to pay a provision – you just have to pay because you’ve damaged their property or fired them.
I’m not sure the 2 standards reconcile. They were written for 2 different reasons:
-IFRS 9 ensure that liabilities are not classified as equity
-IAS 37 ensure that provisions only recognised if there is an obligating past event.Best I can do!
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