IAS 37 · Free study guide

    IAS 37: Provisions, Contingent Liabilities and Contingent Assets

    IAS 37 sets the recognition threshold for provisions and explains when a potential obligation is disclosed instead of recognized (a contingent liability) or not mentioned at all. The three-way distinction — provision, contingent liability, contingent asset — is one of the most frequently tested judgment frameworks in financial reporting.

    It's covered across financial reporting syllabi at multiple levels of professional qualifications, and it comes up constantly in practice, from litigation and warranty provisions to restructuring costs — any uncertain future obligation runs through IAS 37's recognition test.

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    Frequently asked questions

    What's the core test in IAS 37?

    Whether there's a present obligation, an outflow is probable, and the amount can be reliably estimated — all three have to be met to recognize a provision.

    What's the difference between a provision and a contingent liability?

    A provision is recognized on the balance sheet; a contingent liability is only disclosed because it fails at least one of the recognition criteria (usually probability or reliable measurement).

    Is IAS 37 tested often in exams?

    Yes — the provision-vs-contingent-liability distinction is a recurring exam theme, often applied to realistic scenarios like lawsuits or restructurings.

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