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(1) This Procedure is concerned with understanding disclosure requirements of contingent assets and liabilities to ensure that the University is AIFRS compliant by adopting accounting standard AASB137 – Provisions, Contingent Liabilities and Contingent Assets. (2) Refer to the Accounting (Financial) Policy. (3) Refer to the Accounting (Financial) Policy. (4) Contingent assets and contingent liabilities are not recognised in the financial statements of the University, however disclosure of information regarding contingent assets and contingent liabilities is required by way of a note to the annual financial report. (5) To properly account for liabilities it is imperative that the distinction between liabilities (trade payables and accruals) and provisions is well understood and accounted for. Further, that the difference between a liability (crystallised) and a contingent liability is also well understood and its subsequent accounting and disclosure treatment. (6) A liability is a present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow from the University’s resources embodying economic benefits, e.g. trade payables and accruals. (7) Accruals are liabilities to pay for goods and services that have been received or supplied but have not yet been paid, invoiced or formally agreed with the supplier. Accruals are often reported as part of trade and other payables, whereas provisions are reported separately. (8) Provisions are liabilities which have an uncertain timing or amount. They are distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or the amount of the future expenditure required in settlement. The present obligation under an onerous contract is recognised as a provision. (9) A provision will be recognised when: (10) Contingent liabilities are possible obligations that arise out of past events and whose existence will be confirmed only by the occurrence of or non-occurrence of one or more uncertain future events not wholly within the control of the University. These can also be present obligations that arise from past events but they are not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. Where the University is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by the other parties is treated as a contingent liability. (11) Contingent assets are possible assets that arise 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 University. Contingent assets are assessed continually and if they become certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements in the period that the change from probable to certain occurs. (12) Where, as a result of past events, there may be an outflow of resources embodying future economic benefits in settlement of: (a) a present obligation; or (b) a possible obligation 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 University. (13) Where, as a result of past events, there is a possible asset 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 University. (14) Refer to the Contingent Assets and Liabilities Decision Tree Flowchart. (15) The University 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: (16) Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent asset at the reporting date, and, where practicable, an estimate of the financial effect. It is important that disclosures for contingent assets avoid giving misleading indications of the likelihood of income arising. (17) Examples of contingent assets and liabilities (18) Where any of the information required above is not disclosed because it is not practicable to do so, that fact shall be stated. (19) In extremely rare cases, if the disclosure of some or all of the information required can be expected to prejudice seriously the position of the University in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, the University need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. (20) Executory contracts are excluded from disclosure requirements unless they are deemed onerous. An onerous contract is one where the unavoidable costs under the obligations of the contract exceed the benefits expected to be received under it. Whereas an executory contract is one in which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. (21) Corporate Finance is responsible for collating and final presentation of information in the University’s annual financial report. (22) Finance Managers are to keep a manual register of contingent assets and liabilities throughout the year. (23) Legal Services is to provide a register of potential legal actions that may eventuate into a contingent asset or a contingent liability at the end of the reporting year. (24) For the purpose of this Procedure:Asset Procedure - Contingent Assets and Liabilities Accounting
Section 1 - Background and Purpose
Section 2 - Scope
Section 3 - Policy Statement
Section 4 - Procedures
Part A - Basis for Identifying Contingent Assets and Liabilities
Part B - Accounting and Disclosure Procedures
Identifying Provisions and Contingent Liabilities
Identifying Contingent Assets
Decision Tree
Contingent Liability Disclosure
Contingent Asset Disclosure
Grounds for Non-disclosure of Contingent Assets and Liabilities
Part C - Operational Aspects
Section 5 - Definitions