The core idea
Liabilities sit on a spectrum of certainty. At one end, trade payables and notes — crisp, dated, measured. At the other, warranties, lawsuits, environmental exposures — probable in aggregate, uncertain in detail. IAS 37 turns that continuum into three buckets: recognise, disclose, ignore. Where a firm places its exposures tells you how it thinks. — after IAS 37
The hero diagram
From certain to contingent.
The probability scale that determines accounting treatment.
The rules on the page
The rules of the game.
How to apply
Auditing a liability section.
- List all provisions. Warranties, restructuring, environmental, legal. Each is an estimate.
- Read the contingent-liability footnote. That is where probable-but-not-recognised risks live.
- Compare provision balance year-over-year. Big releases = previously over-accrued; big additions = growing risk.
Key reading · Session 5 · Kraft
Liabilities and debt.
The hardest part of liability accounting is not recording what you owe — it is estimating what you might owe. That estimation is where management discretion lives, and where the most interesting stories in annual reports are hidden.
Read the provisions. Read the footnotes. Twice.