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AS-4 contingencies & events occurring after the balance sheet date -…
AS-4 contingencies & events occurring after the balance sheet date
Meaning
Scope
: Deals with events after the balance sheet date up to approval by the Board of Directors.
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.
Objective
To prescribe accounting for contingencies and post-balance sheet events.
Covers
:
Contingencies.
Events after the balance sheet date.
Applicability Exclusions
Life assurance and general insurance liabilities.
Retirement Benefit Plans obligations (AS 15).
Long-Term Lease Contracts commitments (AS 19).
Contingency Definition
An existing condition with uncertain outcome, dependent on future events.
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.
Loss Contingencies Examples
Collectability of receivables.
Litigation claims and asset recovery assessments.
Events After Balance Sheet Date
Occur between the balance sheet date and financial statements' approval.
Can be favorable or unfavorable.
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.
Post-Approval Events
Material events post-board approval disclosed in the Director's Report.
Disclosure
Material contingent losses not provided for to be disclosed in notes.
If unable to estimate financial effect, this fact should be disclosed.