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IAS 37Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5
WorkpaperIAS 37 — Provisions, Contingent Liabilities and Contingent AssetsL1 · L2 · L3

Recognition analysis of provisions and contingencies

11 missions14 sections to document35 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective of the workpaper

For each situation, check the scope, whether a present obligation arises from a past event, the probability of the outflow of resources and whether a reliable estimate can be made; classify the situation (provision, contingent liability disclosed or not, contingent asset, asset recognised), record the entries and pass the items of the note.

14 sections · 32 blocks · 2 calculations · 2 entries

  • IAS 37
  • IAS 37
  • IAS 37 §3
  • IAS 37
  • IAS 37
  • IAS 37 §8
  • IAS 37 §10
  • IAS 37 §11
  • IAS 37 §13
  • IAS 37 §14
  • IAS 37 §15
  • IAS 37 §16
  • IAS 37 §17
  • IAS 37 §18
  • IAS 37 §19
  • IAS 37
  • IAS 37
  • IAS 37
  • IAS 37 §23
  • IAS 37 §24
  • IAS 37 §25
  • IAS 37
  • IAS 37 §27
  • IAS 37 §28
  • IAS 37 §29
  • IAS 37 §30
  • IAS 37 §31
  • IAS 37 §32
  • IAS 37 §33
  • IAS 37 §34
  • IAS 37
  • IAS 37 §84
  • IAS 37 §86
  • IAS 37
  • IAS 37

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

11 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Warranties, shared pollution, lawsuits and a claim: provision, contingent liability or contingent asset
Case tasks documented here
  • For each situation, is there a liability at the reporting date? Distinguish a provision, an accrual and the absence of an obligation.
  • Calculate the warranty provision at 31 December 20X1.
  • Calculate the provisioned share and the contingent liability share of the clean-up obligation.
  • Classify the Ruvalis lawsuit, the former agent's claim and the claim against Faldaro.
  • Record the entries at 31 December 20X1.
1

Inputs

Inputs

  • Situation examined (facts, counterparty, nature of the dispute, warranty or commitment)

    TextRequired

    PRODUCT_WARRANTIES

  • Reporting date

    DateRequired

    20X1-12-31

  • Past event relied on and date (possible obligating event)

    Text

    SALES_UNDER_WARRANTY

  • Opinions of counsel and experts, events after the reporting period

    Text

  • Best estimate of the outflow of resources (measured in “Measurement of the provision” where needed)

    Number

    92,500

  • Amount of the expected inflow of economic benefits (claim, compensation)

    Number

  • Total obligation for which the entity is jointly and severally liable

    Number

  • Share of the obligation for which an outflow of resources from the entity is probable (%)

    Number

    Case data or documented estimate of the entity (ability of the other parties to pay, for example); this model imposes no method of apportionment.

2

Supporting evidence

Evidence

  • Evidence obtained and referenced (category, document reference)

    EvidenceRequired

3

Scope

Analysis

IAS 37IAS 37IAS 37 §3IAS 37IAS 37IAS 37 §8

  • Points examined

    ChecklistRequired

    • Executory contract (neither party has performed its obligations, or both have partially performed to an equal extent): outside the scope unless onerous
    • Financial instrument, including a guarantee, within the scope of IFRS 9: outside the scope
    • Item dealt with by another standard (IAS 12, IFRS 16, IAS 19, IFRS 17, IFRS 3, IFRS 15): that standard applies, except for a contract with a customer or certain leases that have become onerous
    • Depreciation, impairment of assets or doubtful debts: adjustment to the carrying amount of an asset, not a provision
    • Debit side of the provision: expense or asset according to the standard applying to the expenditure (IAS 37 neither requires nor prohibits capitalisation)
4

Present obligation and past event

Analysis

IAS 37 §10IAS 37 §11IAS 37 §15IAS 37 §16IAS 37 §17IAS 37 §18IAS 37 §19IAS 37IAS 37IAS 37

  • Points examined

    ChecklistRequired

    • Legal obligation (contract, legislation) or constructive obligation (past practice, published policy, specific statement creating a valid expectation) leaving no realistic alternative to settling it
    • Obligation existing independently of the future conduct of the business; no provision for costs needed to operate in the future
    • Decision of management or the board: constructive obligation only if communicated before the reporting date to those affected in a sufficiently specific manner
    • New legislation (virtually certain to be enacted as drafted) or public commitment of the entity turning a past event into an obligating event
    • Disputed existence (lawsuit): present obligation if more likely than not in the light of all available evidence, including experts' opinions and events after the reporting period
    • Uncertainty about timing or amount distinguishing the provision from a trade payable or an accrual
5

Recognition criteria

Analysis

IAS 37 §13IAS 37 §14IAS 37 §23IAS 37 §24IAS 37 §25IAS 37

  • Points examined

    ChecklistRequired

    • Three cumulative conditions: present obligation as a result of a past event, probable outflow of resources, reliable estimate
    • Probable outflow: more likely than not
    • Similar obligations (warranties): probability assessed for the class as a whole
    • Reliable estimate possible except in extremely rare cases; otherwise, contingent liability disclosed
    • Provision (present obligation meeting the criteria) or contingent liability (possible obligation, or present obligation not meeting them)
6

Contingent liabilities

Analysis

IAS 37 §27IAS 37 §28IAS 37 §29IAS 37 §30

  • Points examined

    Checklist

    • Contingent liability never recognised
    • Disclosed unless the outflow of resources is remote
    • Joint and several liability: part of the entity for which an outflow is probable provided for, part expected to be met by the other parties treated as a contingent liability
    • Continual reassessment: provision in the period in which the outflow becomes probable
7

Contingent assets

Analysis

IAS 37 §31IAS 37 §32IAS 37 §33IAS 37 §34IAS 37

  • Points examined

    Checklist

    • Contingent asset (claim pursued through legal processes with an uncertain outcome, for example) never recognised
    • Disclosed when the inflow of economic benefits is probable
    • Inflow virtually certain: the asset is no longer contingent; asset and income recognised in the period of the change
    • Asymmetric thresholds: probable outflow for a provision, virtually certain inflow for an asset
8

Joint and several obligation

Calculations

IAS 37 §29

  • Share provided for (total obligation × entity's probable share)

    Calculation

    Total obligation for which the entity is jointly and severally liable ; Share of the obligation for which an outflow of resources from the entity is probable (%)

  • Share treated as a contingent liability (total obligation − share provided for)

    Calculation

    Total obligation for which the entity is jointly and severally liable ; Share of the obligation for which an outflow of resources from the entity is probable (%)

9

Journal entries

Entries

  • Recognition of the provision

    Entry

    AccountDebitCredit
    Provision expense92,500
    Provision92,500

    Teaching assumption: the provision is recognised as an expense; where the standard applying to the expenditure requires it to be included in the cost of an asset (para. 8), the debit changes (see “Measurement of the provision”).

  • Recognition of the asset that has become virtually certain

    Entry

    Debit Receivable ← Amount recognised as an asset (inflow virtually certain; 0 otherwise) ; Credit Other income ← Amount recognised as an asset (inflow virtually certain; 0 otherwise)

10

Classification of the situation

Judgment

IAS 37IAS 37IAS 37 §13IAS 37 §14IAS 37 §15IAS 37 §16IAS 37 §23IAS 37 §28IAS 37 §29IAS 37 §33IAS 37 §34

  • Standard applicable to the situation

    JudgmentRequired

    Within the scope of IAS 37

    Within the scope of IAS 37 / Within the scope of another standard / Executory contract that is not onerous (outside the scope) / Adjustment to the carrying amount of an asset (outside the scope)

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

  • Obligation at the reporting date

    JudgmentRequired

    Present legal obligation

    Present legal obligation / Present constructive obligation / Possible obligation (existence to be confirmed by uncertain future events) / No obligation (future costs the entity can avoid) / Not applicable (contingent asset situation)

    Professional judgement: where in doubt, the existence of the obligation is assessed in the light of all available evidence, including experts' opinions and later events (paras. 15 and 16).

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

  • Probability of the outflow or inflow of resources

    JudgmentRequired

    Outflow probable (more likely than not)

    Outflow probable (more likely than not) / Outflow not probable but not remote / Outflow remote / Inflow virtually certain / Inflow probable but not virtually certain / Inflow not probable

    Professional judgement: probable means more likely than not (para. 23). This model puts no figure on remote or virtually certain; a numerical threshold given by a case is an assumption of that case.

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

  • Treatment retained

    ChoiceRequired

    Provision recognised

    Provision recognised / Contingent liability disclosed in the notes / Contingent liability not disclosed (outflow remote) / No liability (neither provision nor disclosure) / Contingent asset disclosed in the notes / Contingent asset not disclosed (inflow not probable) / Asset and income recognised (inflow virtually certain) / Outside the scope of IAS 37

  • Amount recognised as a provision (0 if no provision)

    Number

    92,500

    The amount follows from the classification: best estimate of the outflow if a provision is recognised, the entity's probable share for a joint and several obligation (para. 29), 0 otherwise.

  • Amount recognised as an asset (inflow virtually certain; 0 otherwise)

    Number

  • Estimated financial effect disclosed (contingent liability or asset)

    Number

11

Conclusion

Conclusion

  • Classification of the situation, amounts recognised or disclosed and entries

    ConclusionRequired

12

Financial statement impact

FS impact

  • Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

    TableRequired

13

Items passed to the note

Disclosure

IAS 37 §28IAS 37 §34IAS 37 §84IAS 37 §86IAS 37IAS 37

  • Items passed to the notes workpaper (“Note: provisions and contingencies”)

    ChecklistRequired

    • Class of the provision and amount provided (roll-forward)
    • Contingent liability not remote: nature, estimate of the financial effect where practicable, uncertainties, possibility of reimbursement
    • Contingent asset with a probable inflow: nature and estimate of the financial effect where practicable
    • Provision and contingent liability arising from the same circumstances: link to be shown
14

Normative references

References

  • Paragraphs cited in this workpaper (verification status shown from the register)

    References

15

Checks and financial statement impact

  • The scope assessment is documentedPass
  • The existence of a present obligation is documentedPass
  • The probability of the outflow or inflow is documentedPass
  • The treatment retained is statedPass
  • The amount provided for a joint and several obligation is the entity's probable shareNot evaluated
  • The provision entry is balancedPass
  • The asset entry is balancedNot evaluated
Assets
0
Liabilities
92,500
Profit or loss
-92,500
OCI
0
Equity
-92,500