AS-4 contingencies & events occurring after the balance sheet date

  1. Meaning
  • Scope: Deals with events after the balance sheet date up to approval by the Board of Directors.
  1. Introduction
  • Qualitative Characteristics:
  • Completeness of information.
  • Reliance on 'Prudence' for relevant and reliable information.
  • Accounting Basis:
  • Accrual Basis.
  • Prudent accounting policies for asset and liability recognition.
  1. Objective
  • To prescribe accounting for contingencies and post-balance sheet events.
  • Covers:
  • Contingencies.
  • Events after the balance sheet date.
  1. Applicability Exclusions
  • Life assurance and general insurance liabilities.
  • Retirement Benefit Plans obligations (AS 15).
  • Long-Term Lease Contracts commitments (AS 19).
  1. Contingency Definition
  • An existing condition with uncertain outcome, dependent on future events.
  1. Estimation of Contingencies
  • Provision Criteria:
  • Based on information available up to account approval.
  • Contingency must exist on the balance sheet date.
  • Assessment Levels:
  • Probable: Likely occurrence.
  • Reasonable: More than remote but less than likely.
  • Remote: Slight chance of occurrence.
  1. Loss Contingencies Examples
  • Collectability of receivables.
  • Litigation claims and asset recovery assessments.
  1. Events After Balance Sheet Date
  • Occur between the balance sheet date and financial statements' approval.
  • Can be favorable or unfavorable.
  1. Accounting Treatment Categories
  • Related to Existing Circumstances:
  • Adjust accounts and assets/liabilities.
  • Example: Insolvency of a customer.
  • Unrelated New Events (Non-adjusting):
  • Disclosed in notes, no account adjustments.
  1. Post-Approval Events
  • Material events post-board approval disclosed in the Director's Report.
  1. Disclosure
  • Material contingent losses not provided for to be disclosed in notes.
  • If unable to estimate financial effect, this fact should be disclosed.