(a) Provisions

i. According to IAS 37, provisions are liabilities of uncertain timing or amount. A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

ii. Provisions differ from other liabilities because there is uncertainty about the timing or amount of the future cash flows required to settle the liability.

iii. A provision should be recognised when:

 a company has a present obligation (legal or constructive) as a result of a past event;

 it is probable that an outflow of economic benefits will be required to settle the obligation; and

 a reliable estimate can be made of the amount of the obligation.

If one of these conditions is not met, then a provision cannot be recognised.

iv. The amount recognised as a provision must be the best estimate, as at the end of the reporting period, of future expenditure required to settle the obligation.

v. The estimates of the outcome and financial effect of an obligation are made, by management, based on judgement and experience of similar transactions and perhaps report from independent experts.

vi. Uncertainties about the amount to be recognised as a provision are dealt with by various means according to the circumstance. For instance, in measuring of single obligation, the best estimate of the liability may be the most likely outcome.

Contingent liabilities

i. A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the entity.

ii. A contingent liability is one that does not exist at the reporting date but may do so in the future, or it is a liability that exists at the reporting date but cannot be recognised because it fails one of the IAS 37 recognition criteria.

iii. Contingent liabilities are not recognised as liabilities because they are either possible or present obligations but a sufficiently reliable estimate of the amount of the obligation cannot be made.

iv. Contingent liabilities are not recognised in the financial statements. In some circumstances, information about the existence of a contingent liability should be disclosed in the notes to the financial statements.

v. The standard provides that contingent liabilities should be disclosed unless the possibility of any outflow in settlement is remote.

Contingent assets

i. A Contingent asset is a possible asset that arises from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events. A contingent asset might be a possible gain arising from an outstanding legal action against a third party. The existence of the gain (the money receivable) will only be confirmed by the outcome of the legal dispute.

ii. Contingent assets are not recognised in the financial statements. In some circumstances, information about the existence of a contingent asset should be disclosed in the notes to the financial statements.

iii. The standard provides that contingent assets should be disclosed only if an inflow in settlement is probable. IAS 37 defined “probable” as more likely than not.

iv. Where disclosure of a contingent asset is appropriate, the following disclosures are required:

 A brief description of the nature of the contingent asset.

 Where practicable, an estimate of its financial effect and an indication of the uncertainties.

(b) Sources of regulation

The main sources of regulation are:

 Accounting standards;

 Company law;

 Sectoral regulations; and

 The listing rules of the relevant stock exchange, for listed companies.

Accounting standards are authoritative statements of how particular types of transactions and events are reflected in the financial statements. International Financial Reporting Standards are used in Nigeria.

Company law varies from country to country, but typically, it also sets out rules for determining profits available for distribution, issuing and redeeming share capital, the reserves that a company must have and the uses to which they can be put. These matters are not covered in accounting standards. The main company law statute in Nigeria is the Companies and Allied Matters Act 2020.

Sectoral regulation may apply to certain industries, for example, the banking sector is regulated by the Central Bank of Nigeria, insurance sector by the National Insurance Commission and pension by the Pension Commission. Such regulations may specify peculiar financial reporting requirements of the sectors. For example, in Nigeria, the Central Bank prudential guidelines override impairment provision of IFRS 9.

Listing rules set out the information which entities must supply when their shares are traded on a major stock market. They must comply with these rules in order to maintain their listing. These rules include requirements relating to information, including financial reports that entities must prepare and provide to the stock market while they are listed.