The objective of IAS 37 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. The key principle established by the Standard is that a provision should be recognized only when there is a liability i.e., a present obligation resulting from past events. The Standard thus aims to ensure that only genuine obligations are dealt with in the financial statements - planned future expenditure, even where authorized by the board of directors or equivalent governing body is excluded from recognition.
- Identify the existence of a provision, contingent liability and contingent asset.
- Determine when to recognize a provision and how to measure it.
- Determine when a contingent item should be disclosed.
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