The Relevant International Accounting Standard (IASB) Assignment

The Relevant International Accounting Standard (IASB) - Assignment Example Contingent assets and contingent liabilities are not recognized but disclosed in the financial statement of the company. The main focus and objective of the standard is that the entity recognizes provision in its balance sheet with is the best estimate of the expenditure to settle an obligation at the end of its financial year. This estimate is the amount of cash outflow that the entity is likely to pay in the future. IAS 37 requires the corporation to take into consideration the following essentials when recording provisions in its financial statements, Take all the future and probable risks and uncertainties into account Calculate the present value of the provision by selecting a suitable discount rate. This will represents the current market value of the assessment of the future outflow of economic benefits Take future changes, such as law and changes in technological changes into consideration Expected disposals form the assets are not taken into consideration no matter how close ly the disposal of asset is linked to determining the provision Similarly, there are circumstances in which provision is closely linked to the recognition of revenue; an example would be when an entity gives guarantees in exchange for a fee. The recognition, measurement and accounting specification are mentioned in IAS 18 ‘Revenue’ Discussing the scope of IAS 37 [1], the standard is applied by all entities on accounting for provisioning except those resulting from executor contracts and those covered under other standards such as provisions pertaining to construction contracts (IAS 11), income taxes (IAS 12), employee benefit (IAS 19) and insurance contracts (IFRS 4). IAS 37 is also not applicable to financial instruments. Recognition, Measurement, presentation and disclosure details   The International Accounting Standard (IAS) 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ describes the accounting treatment in respect of financial provisi ons, contingent assets and contingent liabilities. In this context IAS 37 (2009, p 1888) describes that the entity only recognizes a provision, if the following conditions prevails which are: A present obligation has arise due to certain past event The outflow of economic resources, in order to settle that obligation, is probable; and The settlement amount can be reliably measured [2] Further elaborating on the above mentioned points, an obligating event is the one according to which the company has a legal or constructive obligation to settle that obligation and the company does not have any other alternative to that. As further explained in the relevant provisions of IAS 37, a constructive obligation usually arises on account of past practices. In certain circumstances, it might not be certain whether the entity has a present obligation, and even if it does have a present obligation, the outflow of economic resources out of the entity is not certain. The discussed circumstances gi ve rise to a contingent liability, which is required to be disclosed in the financial statement of the company and does not need to recognize. If the possibility of economic out flow is highly remote, then the company is not required to even disclose it in its financial statements. The amount recognized as provision should be the best estimate of the expenditure that is required to settle the present obligation