Sunday, June 17, 2007

AS - 29 Provisions, Contingent liabilities and Contingent Assets

AS 29 a brief summary

Hi I would just like to provide a brief overview of

AS 29 - Provisions, Continget liabilities and contingent assets:

A provision should be recognised in Fin Sts if the following three conditions are satisfied:

1) There is a present obligation as a result of past events
2) It is probable that an outflow of resources embodying economic benefits wud be required to settle the obligation;
3) A reliable estimate of the amount of the obligation could be made.

If all the above three conditions are satisfied then recognise a provision; else,disclose it as a contingent liability unless the possibility of the outflow of resources is REMOTE.


U shud not forget that ----->

A provision should be disclosed at an amount equal to the best estimate( taking account of related future events) of the expenditure required to settle the obligation.

->It should not be discounted to present values( where as IAS 337 requires discounting)

->It should be disclosed pre-taxAlso do not forget to consider the effect of latest legislations, if their enactment is virtually certain.

->Reimbursements:
if say u have to create a prov of rs one lakh and u expect a reimbursement of 20,000(say from insurance people) - then create a seperate asset to the extent of 20000
...........mind u that reimbursement should be recognised only if its receipt is virtually certian



AS 29 - Disclosure Requirements

Well these differ on the basis of whether the company you are auditing is a level one entity or level two or in level three ..

as u correctly guessed if you are in
----> level one : disclose all
----> level two : except some diclose all
----> level three : there is some more lenience

well if the company u r auditing is in LEVEL TWO you DONT need to disclose these:

->with regards to provision:
-nature of the obligation-expected timing of outflows as a result of above obligation-uncertainities wid respect to above obligation-reimbursement with respect to above provisions

if it is LEVEL THREE COMMPANY:In addition to the above u dont need to dislose the following with regards to contingent liability:-Description and nature of the contingent liability-financial impact of such liability-uncertainities relating to above-any possibility of related reimbursement.

If the company is in LEVEL ONE disclose all the above and also disclose:

1) Opening and Closing balances of a provision
2)additional provisions made during current year, also additions made to the existing ones
3)Amounts used in current year from the provision created
4)any reversal of provisions
5)also if Contingent liability relates to a lawsuite and if the disclosures relating to the same would lead to any problems for the company.......
then company need not disclose the same and should mention the fact of existence of dispute


mm also if an enterprise needs to disclose smthg as per this AS but is not disclosing the fact should be stated in the notes.

Well I know its quite big, but better than the verbatim standard...