It sets out the accounting and disclosure requirements for provisions, contingent liabilities and contingent assets, with several exceptions,[1] establishing the important principle that a provision is to be recognized only when the entity has a liability.
[1] It was seen as an "important development" in accounting as it regulated the use of provisions, minimising their abuse such as in the case of big baths.
It establishes that contingent assets and liabilities are not to be recognized in the financial statements, but are to be disclosed where an inflow of economic benefits is probable (assets) or the chance of outflows of resources is not insignificant (liabilities).
[6] The amendments were controversial for setting out rules on how entities would account for legal cases in their financial statements; it would require firms to recognize the contingent liability as a weighted average of the possible outcomes of a legal case.
[7] In 2018, the IASB issued an exposure draft to provide specific requirements on what constitutes 'unavoidable costs' in the definition of onerous contract in IAS 37.