This free, guided checker walks your finance team through the key decision points for IAS 37 Provisions and Contingencies Assessment. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
A present obligation must arise from a past event (the obligating event) and exist independently of the entity's future actions. Distinguish a legal obligation (from a contract, legislation, or other operation of law) from a constructive obligation (from an established pattern of practice and a valid expectation created in other parties). The common trap is recognizing a provision for costs the entity could still avoid by changing its future conduct, which is not a present obligation.
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Official guidance: IFRS issued standards
Zakat is levied on a zakat base rather than on taxable profit, so it is accrued to profit or loss under the entity's zakat policy and presented separately from employee, legal, or restructuring provisions measured under IAS 37. Income taxes are accounted for under IAS 12. Confirm the accrual is computed under the applicable regulations, and do not measure a tax or zakat liability using the IAS 37 recognition criteria, which do not apply to it.
The item is an income-tax or zakat liability outside the scope of IAS 37; account for it under IAS 12 or the entity's zakat policy rather than the IAS 37 provision recognition criteria (IAS 37.5).
Official guidance: IFRS issued standards
An outflow is probable, and the second recognition criterion is met, when the event is more likely than not to occur - a probability greater than 50 percent (IAS 37.23). Where there are a number of similar obligations, such as product warranties, assess the probability by reference to the class of obligations as a whole rather than each item individually (IAS 37.24). The trap is applying a higher probable threshold imported from another framework.
An outflow is not probable, so no provision is recognized; disclose a contingent liability under IAS 37.86 unless the possibility of an outflow is remote.
Official guidance: IFRS issued standards
Restructuring provisions require a detailed formal plan and a valid expectation, raised in those affected, that the plan will be carried out before a constructive obligation exists (IAS 37.72). Legal claims are measured under IAS 37, while post-employment and other long-term employee benefits fall under IAS 19; income taxes and zakat sit outside IAS 37 entirely. The trap is booking a restructuring provision on a board decision alone, before the plan is announced or implementation has begun.
The obligation is an income-tax or zakat liability outside IAS 37; apply IAS 12 or the entity's zakat policy rather than the IAS 37 operational-provision criteria (IAS 37.5).
Official guidance: IFRS issued standards
Reliable measurement is presumed except in extremely rare cases; an entity can almost always determine a range of possible outcomes and therefore a sufficiently reliable estimate (IAS 37.25). Measure the provision at the best estimate of the expenditure required to settle the obligation at the reporting date (IAS 37.36), and discount to present value where the effect of the time value of money is material (IAS 37.45). The trap is defaulting to non-recognition by asserting the amount cannot be estimated when a supportable range exists.
No reliable estimate can be made in this extremely rare case, so the present obligation is not recognized and is disclosed as a contingent liability under IAS 37.26 and IAS 37.86.
Official guidance: IFRS issued standards
A reimbursement is recognized as a separate asset only when it is virtually certain to be received if the entity settles the obligation, and the asset must not exceed the amount of the provision (IAS 37.53). The reimbursement asset and the provision are presented separately in the statement of financial position, although the expense may be presented net of the reimbursement in profit or loss (IAS 37.54). The trap is netting an expected but not virtually certain insurance recovery against the provision.
Recognize the provision at the best estimate and a separate reimbursement asset capped at the provision amount, without netting on the face of the statement of financial position (IAS 37.53; IAS 37.54). Recognize a provision measured at the best estimate of the expenditure required to settle the present obligation, discounted where the time value of money is material (IAS 37.36; IAS 37.45).
Official guidance: IFRS issued standards
A contingent liability is a possible obligation confirmed only by uncertain future events, or a present obligation that is not recognized because an outflow is not probable or cannot be reliably measured (IAS 37.10). A contingent liability is never recognized; it is disclosed under IAS 37.86 unless the possibility of an outflow is remote (IAS 37.28). The trap is failing to disclose because the matter is unresolved, when disclosure is required for all but remote outcomes.
Do not recognize the possible obligation; disclose a contingent liability under IAS 37.86 unless the possibility of an outflow of resources is remote (IAS 37.28).
Official guidance: IFRS issued standards
Contingent assets are not recognized because doing so could result in recognizing income that may never be realized (IAS 37.31). When realization becomes virtually certain, the item ceases to be a contingent asset and recognition is appropriate (IAS 37.33). Where an inflow is probable but not virtually certain, disclose the contingent asset under IAS 37.89; below probable, no disclosure is made. The trap is recognizing a favorable litigation outcome before it is virtually certain.
The inflow is virtually certain and the item is no longer a contingent asset; recognize the related asset and any income under the applicable standard (IAS 37.33). Do not recognize the contingent asset; disclose it under IAS 37.89 only where the inflow of economic benefits is probable, and reassess at each reporting date (IAS 37.34).
Official guidance: IFRS issued standards
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