Under IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets, the authority needs to account for the cancellation of contracts, the legal case, the court’s decision, and the potential revision of the contract amount.

First is whether provision should be made for the court award and contract revision.
IPSAS 19 defines a provision as a liability of uncertain timing or amount. A provision should be recognised when:

• An entity has a present obligation (legal or constructive) as a result of a past event.
• It is probable (more than 50% likely) that an outflow of resources will be required to settle the obligation.
• A reliable estimate can be made of the amount of the obligation.

In relation to the legal obligation from the court ruling (GHc25 million for damages and costs), the authority’s cancellation of the contract constitutes a past event with a present obligation on the authority to pay GHc25 million for damages and costs. Further, there is certainty that the authority must pay damages and costs in compliance with the rule of law. The exact amount has been determined by the courts, therefore fulfilling the condition of reliable estimate. Thus, the authority must recognise a provision for GHc25 million in its financial statements for the year. This will be recorded as a liability and an expense in the statement of financial performance.

In respect of the revised contract amount (potential contract adjustment), there is evidence of a present obligation imposed by the courts to allow the contractors to continue with the project, but the amount is yet to be revised based on inflation and other conditions. This would also result in future outflow of resources as the authority will need to incur further costs to complete the public halls, but the exact contract amount is uncertain.

To determine the amount of the provision, we need to estimate the obligation. Since there are different probabilities for different contract values (GHc600 billion, GHc400 billion, and GHc500 billion), we can calculate the expected value of the obligation. The expected value of the obligation is GHc560 million, which is (0.7 × 600) + (0.1 × 400) + (0.2 × 500). Therefore, the authority should recognise a provision for GHc560 billion as the expected cost of completing the public halls under the revised contracts.

Disclosure required under IPSAS 19
In relation to the provisions for damages and costs of GHc25 million, the authority should disclose:

• A brief description of the nature of the obligation (the court ruling awarding damages and costs).
• The amount of the provision (GHc25 million).
• An explanation of any uncertainties regarding the timing or amount.
• Any possible reimbursement (e.g., if the authority can recover some costs, though this seems unlikely in this case).

Further, the authority should disclose the following in respect of the revised contract amount:

• A brief description of the nature of the obligation (the revised contracts for the construction of public halls).
• The amount of the provision (GHc560 billion).
• The uncertainties regarding the timing or amount of the obligation (e.g., the final revision of the contract price is pending and based on inflation and other factors).
• The methodology used to estimate the provision (the probability-weighted average approach for the contract amounts).

In respect of any contingent liabilities resulting from the events, such as further uncertainties regarding the court ruling (such as appeals or other legal proceedings that could affect the outcome), the authority may need to disclose a contingent liability. A contingent liability should be disclosed if:

• There is a possible obligation that will be confirmed only by the occurrence or non-occurrence of future events (e.g., future court decisions).
• There is a present obligation, but it is not probable that an outflow of resources will be required, or the amount cannot be reliably estimated.