The term "provision" as it is used in IAS 37, is most closely related to what term in U.S. GAAP?
A) Contingent liability, where the outflow of resources is "remote."
B) Contingent liability, where the outflow of resources is "probable."
C) Current liability, where the outflow is difficult to measure.
D) Reserve for bad debt, where the amount recoverable is "uncertain."

Question

Quizplus · Accepted Answer

The term "provision" in IAS 37 is similar to the term "contingent liability" in U.S. GAAP. Both refer to a possible obligation that may or may not occur, and where the amount and timing of the outflow of resources is uncertain. However, the difference lies in the probability of the obligation occurring. In IAS 37, a provision is recognized when the outflow of resources is "probable," whereas in U.S. GAAP, a contingent liability is recognized when the probability of the outflow of resources is "likely" or more than 50%. Therefore, option B is the best choice as it refers to a contingent liability where the probability of the outflow of resources is high enough to recognize it as a liability.

The Term "Provision" as It Is Used in IAS 37