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Payables, provisions and contingent liabilities

2.3 Contingent liabilities and contingent assets

When a provision is not recognised in the financial statements because it does not
meet the criteria specified, it may still need to be disclosed as a contingent liability in
the financial statements.

IAS 37 defines a contingent liability as:

(1) A possible obligation that arises from past events; or

(2) A probable obligation that arises from past events but the amount of the
obligation cannot be measured with sufficient reliability.

The accounting treatment of contingent liabilities and contingent assets may be
summarised as follows:

Probability of occurrence Contingent liabilities Contingent assets

Virtually certain >95% Provide Recognise

Probable 51% – 95% Provide Disclosure note

Possible 5% – 50% Disclosure note Ignore

Remote <5% Ignore Ignore

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