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An Analysis of Contingent Liabilities and Assets - Essay Example
Author : heaneynaomie
Finance & Accounting
Pages 8 (2008 words)
Your Name Your University An Analysis of Contingent Liabilities & Assets 8 April 2012 Table of Contents Introduction 3 Contingent Assets & Liabilities 3 Introduction Contingent Assets & Liabilities IAS 37 offers guidance on the recognition of provisions and the disclosure of contingent liabilities (Greuning et al., 2011)…
It will first examine the link between uncertain transactions and mainstream accounting, will review the rules pertaining to the recognition of contingent assets and liabilities and examine the similarities and differences with US accounting standards.Purpose of IAS 37 A provision is a charge against profits for the purpose of offsetting liability or loss (Hanif, 2005). From this definition, there are three possible reasons why these provisions would be made: 1. For liabilities and changes like provision for income tax. 2. For valuation adjustments for fixed assets like the provision for income tax. 3. For valuation adjustments for current assets like the provision for bad and uncertain debts (Hanif, 2005). Contingent liabilities and their position in financial accounting have a strong connection with recognition (Robinson, 2008). Recognition is the process of incorporating items that meet the definition of elements in financial statements (asset, liabilities, equity, income and expenses) into the balance sheet or income statement (Robinson, 2008). The fundamental requirement for recognition is probability and measured reliability (Arboleda & Bessis, 2011). In other words, for a transaction to become an element in a financial statement, it must have a high chance of being carried out. ...