Ias Provisions Contingencies

Provisions and Contingencies (Section 21 / IAS 37)

Overview

A provision is recognised when:

1. The entity has a present obligation (legal or constructive) as a result of a past event.
2. It is probable an outflow of resources embodying economic benefits will be required to settle the obligation.
3. The amount can be measured reliably.

Otherwise, a contingent liability is disclosed (unless the possibility of outflow is remote).

A contingent asset is disclosed when an inflow of economic benefits is probable but not virtually certain; if virtually certain, the asset is recognised.

Required first reads

• doctrine/accounting-finance-doctrine.md
• doctrine/references/ifrs-for-smes-default.md (Section 21)
• doctrine/references/full-ifrs-overlay.md (IAS 37)

Measurement

Best estimate of the expenditure required to settle the present obligation at the reporting date. For a large population (e.g. warranties), the expected-value method. For a single obligation, the most-likely-outcome method (potentially adjusted for skewness).

Provisions discounted to present value where the effect is material and a reliable discount rate is available.

Common provisions

• Warranty obligations.
• Restructuring (announced before reporting date with detailed plan).
• Onerous contracts (unavoidable costs > expected economic benefits).
• Decommissioning, restoration, environmental remediation.
• Legal claims (probable settlement).
• Customer refunds (where return policy is constructive obligation).

Contingent liabilities — disclosure only

• Possible obligations confirmed only by uncertain future events.
• Present obligations not recognised because outflow not probable or amount not reliably measurable.

Disclosure: nature, estimate of effect, uncertainties, possibility of reimbursement (where applicable).

Build implications

• Provisions register: nature, opening balance, additions, utilisations, reversals, closing.
• Quarterly review by Controller; reviewer sign-off.
• Recognition checklist applied to each candidate item.
• Disclosure note generator with movements table.
• Contingent register: separate from provisions register.

CoA implications

Forbidden patterns

• Provision recognised without a present obligation (blocker — common error: provisioning for future operating losses).
• "Smoothing" provisions (blocker).
• General provisions not tied to specific obligations (major).
• Contingent liabilities recognised as provisions (blocker).
• Contingent assets recognised before virtually certain (blocker).

Files

• SKILL.md.
• references/recognition-decision-tree.md.
• references/onerous-contract-test.md.

Last reviewed: 2026-05-12. Next review due: 2026-11-12.

Prerequisites

• Load doctrine/accounting-finance-doctrine.md before applying this skill.
• Load governance/finance-accounting-quality-gate.md when the output is a release, client artefact, SRS, SDS, proposal, business plan, or implementation plan.
• Use doctrine/source-register/ for final statutory, tax, payroll, FX, EFRIS, eTIMS, or authority-template values.

Inputs

Outputs

Decision Rules

• Prefer IFRS for SMEs for typical SME entities unless full IFRS, local law, donor requirements, or client policy requires otherwise.
• Treat every money-touching workflow as ledger, control, reconciliation, evidence, and reporting scope.
• Do not finalize statutory values without source-register support and reviewer status.
• Use business-language output for operators and accountant-language output for ledger, reporting, and audit users.
• Escalate uncertain framework, tax, or statutory interpretations to the required reviewer role instead of presenting them as final.

Acceptance Evidence

• Inputs and outputs above are present or explicitly marked not applicable.
• Relevant quality-gate blockers have been checked and no blocker remains unresolved.
• Examples or fixtures cover at least one happy path and one failure or caveat path for this skill's domain.
• Reviewer role, review date, and open caveats are recorded for release-grade artefacts.

Anti-Patterns

• Treating draft planning assumptions as final statutory or accounting facts.
• Hiding tax, payroll, FX, or authority-template caveats in prose instead of source-register state.
• Producing technically correct accounting output without a plain-language layer for non-accountant users.
• Closing a remediation or implementation item without observable evidence.

Required References

• doctrine/accounting-finance-doctrine.md.
• governance/finance-accounting-quality-gate.md.
• docs/reference-manifest.md for declared reference states.
• Domain-specific references listed earlier in this skill.

Examples

• Include at least one normal workflow example for this skill's domain.
• Include at least one exception, rejection, reversal, stale-source, or reviewer-caveat example where the domain can fail.

Advanced review handoff

For each item, evidence the past event, present legal or constructive obligation, probability assessment, best estimate, risk/uncertainty, discounting, expected reimbursements, movement, reversal and contingent disclosure. Onerous contracts and restructurings require their own recognition tests; future operating losses are not a present obligation.

Evidence Produced

Review Metadata

Last reviewed: 2026-05-15. Next review due: 2026-11-15.