Obligations of an entity can arise due to legal form such as contractual relationship or operation of law and legislation. Such obligation are often determined and accounted for as a liability in accordance to its legal form (e.g. financial instruments). However, some obligations arise due to economic substance such as constructive obligation (e.g. bonus or voluntary payment of damages), or as a result of litigation (e.g. law suit against the entity for damages). Such obligations are more difficult to identify and measured. These obligations need to be classified as either a provision or a contingent liability. The accounting for provisions, contingencies and financial liabilities often requires the application of complex recognition and measurement rules that can have a significant impact on an entity’s reported financial performance and financial position. These issues are inherently complex and are still undergoing significant changes.

This course provides comprehensive and up-to-date coverage of FRSs that govern the disclosure, presentation, recognition and valuation of liabilities. These liabilities include items such as provisions, contingencies, asset retirement obligations, restructuring obligation, financial liabilities, and liabilities arising from events after the reporting period.

Programme Outline 

Obligations – non-financial liabilities (FRS 37)

Provisions

• The differences between provision and other liabilities
• Examining the conditions for recognising a provision:

              – Existence of past event that is an obligating event

              – Existence of present obligation

              – Probable outflow of resources embodying economic benefits

              – Reliable estimate of the obligation

• Issues to be considered when measuring provision:

              – Using best estimate; Risk and uncertainties; Present value; Future event; Expected disposal of assts

• Examining the problem of future operating losses, onerous contracts and corporate restructuring
• Managing provision in future period where there is a change in provision and how to use the provision
• Examining the information to be disclose for provision
• Handling third-party reimbursements: Recognition, measurement, presentation and disclosure 
• Asset retirement obligations: (Covering Int. FRS 101 Changes in Existing Decommission, Restoration and Similar Liabilities)
• Warranties and other sales-related obligations 
• Changes in contingent liabilities or provisions

Contingent liabilities

• Probable obligation Vs. Possible obligation
• Disclosure issues

Obligation – Financial Liabilities (FRS39, FRS32 and FRS107)

• Distinguishing liability from equity
• Classification of compound instruments
• Offsetting assets and liabilities
• Liquidity risk profile 
• Off-balance sheet obligations 
• Recognition and de-recognition criteria for financial liabilities 
• Disclosure of fair value and key assumptions 
• Puttable financial instruments at fair value and obligations arising on liquidation 
• Financial guarantee and commitments

The Effects of Event After The Reporting Period on Obligations (FRS10)

• Recognition and measurement:

              – How to identigy adjusting and non-adjusting events after the reporting period 

              – Dealing with dividends and going concern issues

• Disclosure:

              – Date of authorisation for issue 

              – Updating disclosure about conditions at the end of the reporting period

• Non-adjusting events after the reporting period

Intended For

A foundation programme intended for all Accounting and Auditing Professionals

Training Methodology

Lecture style, with Exercises/Case Studies