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CMA Intermediate · Corporate Accounting and Auditing · Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37)

Which statement correctly reflects the relationship between provisions and the term 'contingent' in Ind AS 37?

In a general sense provisions are contingent because timing or amount is uncertain, but within Ind AS 37 the word contingent is reserved for liabilities and assets that are not recognised, whose existence depends on uncertain future events not wholly within the entity's control.

  1. AAll provisions are contingent in the sense used in the Standard, so they are never recognised
  2. BIn a general sense all provisions are contingent because they are uncertain in timing or amount, but within the Standard 'contingent' is used for liabilities and assets that are not recognisedCorrect
  3. CThe term 'contingent' is used in the Standard only for assets and never for liabilities
  4. DProvisions are recognised only when the existence of the obligation depends on future events within the entity's control

Explanation

The Standard notes that provisions are contingent in a general sense because of uncertain timing or amount, but it reserves 'contingent' for items not recognised, as existence is confirmed only by uncertain future events not wholly within the entity's control. Contingent liabilities also include present obligations failing recognition criteria.

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