1. IPSAS I9: Provisions, contingent assets and contingent liabilities Presented by: George Osina Date: August 2015 A closer look 1

2. IPSAS 19 – Provisions, contingent assets and liabilities

3. Content – IPSAS 19 1. Introduction, scope and definitions 2. Recognition 3. Measurement 4. Disclosures 3

4. I. Introduction 4 Objective: The objective of this standard is to define provisions, contingent liabilities and contingent assets and identify the circumstances in which provisions should be recognised, how they should be measured, and the disclosures that should be made about them. Standard also deals with disclosures on contingent liabilities and assets.

5. I. Introduction 5 Scope This standard applies to an entity that prepares and presents its financial statements under the accrual basis of accounting except: -Provisions arising from insurance contracts -Those resulting from executory contracts, other than where the contract is onerous(IPSAS 11-Construction contracts) -Those covered under other IPSAS

6. I. Introduction 6 Scope -Those provisions arising in relation to income taxes and income tax equivalents(IAS 12) - Those arising from employee benefits(IPSAS 25) except those terminal benefits that arise from restructuring Those provisions and contingent liabilities arising from social benefits provided by an entity for which it does not receive consideration approximate to its value of goods provided

7. I. Introduction 7 Scope Applies to all public sector entities other than GBEs.

8. I. Definitions 8 Constructive obligation- an obligation that derives from an entity’s action where -By an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain liabilities - As a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities

9. I. Definitions 9 Contingent asset- is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the entity.

10. I. Definitions 10 Contingent liability- -A possible obligation that arises from past events, and whose existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the entity. -A present obligation that arises from past events and its not recognised because

11. I. Definitions 11 Contingent liability- -It is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or The amount of the obligation cannot be measured with sufficient certainty.

12. I. Definitions 12 Provision- a liability of uncertain timing or amount. Legal obligation- an obligation that derives from a contract, legislation or other operation of law An obligating event- is an event that creates a legal or constructive obligation that results to an entity having no realistic alternative to settling that obligation

13. I. Introduction 13 Provisions and other liabilities Distinction Payables and accruals usually have certainty with the amount and the timing while provisions do not

14. I. Introduction 14 Provisions and contingent liabilities Distinction Generally or provisions are contingent because there is no certainty in timing or amount. However as per the standard, contingent liability is used for liabilities that are not recognised because their existence will only be confirmed by a future occurrence or non occurrence and they do not meet the recognition criteria

15. 2. Recognition 15 A provision shall be recognised when: -An entity has a present obligation to(legal or constructive) as a result of a past event. -It is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation and -A reliable estimate can be made of the amount of the obligation If these conditions are not met a provision shall not be recognised.

16. 3. Recognition 16 Examples of present obligation -Penalties -Costs for unlawful environmental damage Under probability of outflow of resources, the probability that there will be outflow of resources should be greater than the probability that it will not. The estimate used should be reliable

17. 4. Recognition 17 Contingent liability- An entity shall not recognise a contingent liability A contingent liability is disclosed in the financial statements, unless the possibility of an outflow is of resources is remote. An entity will assess its contingent liabilities to assess whether the recognition criteria has been met. If met, it should recognise a provision.

18. 4. Recognition 18 Contingent Asset An entity shall not recognise a contingent asset A contingent asset is disclosed, where an inflow of economic benefits or service potential is probable. An entity will assess its contingent assets to assess whether the recognition criteria has been met. If met, it should recognise in the FS

19. Measurement 19 Best estimate The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the reporting date. The risks and uncertainties that inevitably surround many events and circumstances should be taken into account in reaching the best estimate of a provision.

20. 6. Measurement 20 - Where the effect of the time value for money is material, the amount of a provision shall be the present value of the expenditure expected to be required to settle the obligation.

21. 6. Changes in provisions 21 Provisions shall be reviewed at each reporting date, and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation, the provision will be reversed.

22. 7. Disclosures 22 For each class of provision the entity shall disclose: -The carrying amount at the beginning and end of the period -Additional provisions in the period, including increases to existing provisions -Amounts used during the period i.e incurred or charged against the provision -Unused amounts during the period - Changes due to the effect in discount rate where present value has been used

23. 7. Disclosures 23 For each class of provision the entity shall disclose: -A brief description of the nature of the provision and the expected timing of the outflows of economic benefit or service potential -An indication of uncertainties about the timing and amount of those outflows -The amount of any expected reimbursement, including any asset recognised for the expected reimbursement

24. 7. Disclosures 24 Contingent liability Unless the possibility of any outflow in settlement is remote, an entity shall disclose, for each class of contingent liability at the reporting date, a brief description of the nature of the contingent liability, and where practicable: -An estimate of its financial effect -An indication of uncertainties relating to amount and timing of outflow -The possibility of any reimbursement.

25. 7. Disclosures 25 Contingent Assets Where an inflow of economic benefits or service potential is probable,an entity shall disclose a brief description of the nature of the contingent assets at the reporting date and where applicable, an estimate of their financial effect.

26. Q&A 26

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