ACCA Strategic Business Reporting (SBR) Practice Exam

Which of the following is NOT a type of provision as per IAS 37?

1. Warranty provisions

2. Contingent liabilities

3. Restructuring costs

4. Onerous contracts

The correct answer is: Contingent liabilities

The correct answer highlights that contingent liabilities are not categorized as provisions under IAS 37. Provisions are recognized in the financial statements for present obligations resulting from past events when it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Contingent liabilities, on the other hand, represent potential obligations that may arise based on the outcome of future events. They are not recognized in the financial statements but are disclosed in the notes if their occurrence is probable or possible. This distinction is crucial, as provisions require a more certain obligation while contingent liabilities reflect uncertainty and are not recognized until the actual outflow of resources is probable. In contrast, warranty provisions, restructuring costs, and onerous contracts are all types of provisions that are recognized under IAS 37, as they are associated with present obligations that are likely to result in an outflow of resources. These categories involve specific situations where entities can estimate and recognize their liabilities, thus fitting the criteria set out by IAS 37 for the creation of provisions.