Hello Tutor

Contingent liability: possible liability arising from past events…. existence confirmed by future events. Eg a law case about possible damage caused by a product sold some time in the past. We won’t know the outcome until the case is heard/settled.

If there is;

Present obligation probably requiring outflow of resources: provision recognised and disclosures required

Possible obligation, or present obligation that will probably not require outflow of resources: no provision, but disclosure

Possible obligation, or present obligation where likelihood of an outflow is remote: no provision, no disclosure.

Audit work = inspecting correspondence, contracts, board minutes, receiving lawyers’ opinions, letter or representation.

A provision is a liability that is of uncertain timing or amount. Pretty much the same audit work as contingent liabilities.