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Sir,
May i know when the inflow of resources are uncertain on realization, it will be recognise as contingent asset but there will not recognize under SOFP while only disclose in note to FS?
However if the income was virtually certain after the YE, is it adjusting event?
A good example of a contingent asset is where the audit client company has filed a legal claim against a supplier for compensation of some sort. The claim is made during the year and at the year end, the directors want to know how to account for it. It would not be prudent to recognise an asset unless it is virtually certain to be received (IAS 37). Even if the best legal advice is that the audit client will win, the outcome will not be known until the matter is decided in court.
Therefore, the existence of the legal claim will be disclosed in the notes – with a best estimate of what will be the financial outcome and when.
I don’t know about in Malaysia, but in the UK, it can takes months – even years – for matters to be resolved through the courts. Let’s suppose that after the year end, the suppliers’ lawyers advise the audit company’s legal advisor that the supplier is prepared to offer an “out-of-court settlement” – and the company decides to accept it. THAT is an adjusting event and, as long as the supplier intends and has the means to pay the agreed amount, that would be recognised as a receivable (i.e. a current asset in the SoFP).
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