Procedures

Contingent Liabilities - Procedures

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1. Purpose and Objectives

The purpose of these procedures is to ensure the appropriate recognition and recording of contingent liabilities of the University.

2. Definitions, Terms, Acronyms

Contingent liability - a potential liability that may be incurred depending on the outcome of a future event such as a court case.

3. Procedures Scope/Coverage

These procedures apply to all University staff who become aware of situations which may give rise to potential contingent liabilities.

4. Procedures Statement

AASB137 Provisions, Contingent Liabilities and Contingent Assets defines a contingent liability as:

(a) 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; or

(b) A present obligation that arises from past events but is not recognised because:

• it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

• the amount of the obligation cannot be measured with sufficient reliability.

With a contingent liability a possibility, rather than a probability, will exist with respect to the future commitment to the outflow from the entity of resources embodying economic benefits.

A contingent liability may progress to become a provision and then to become a liability. For example, if a lawsuit is commenced against the University, a contingent liability will probably exist. If at year end, the decision has gone against the University, but the amount to be paid or the time by which the amount has to be paid is uncertain, then the University must recognise a provision. When these uncertainties become certainties, a liability will exist.

5. Recording of Contingent Liabilities

Section 26 of the Financial and Performance Management Standard 2009 requires that the University keeps a register of contingent liabilities. The register of contingent liabilities is maintained by the Accounting and Reporting Section within the FBS Division.

Organisational units are required to notify the Accounting and Reporting Section if they become aware of a contingent liability or circumstances where a contingent liability may arise.

The following information pertaining to each contingent liability is required for entry into the register:

  • a description of the contingency;
  • the contingency's value, if this can be reliably measured;
  • the way in which the contingency arose, for example, its source;
  • any action taken relating to the contingency.

6. Reporting of Contingent Liabilities

Contingent liabilities are not recognised in the financial statements but a brief description needs to be disclosed by way of note to the financial statements of the nature of the contingent liability, and, where practical include:

(a) an estimate of its financial effect;

(b) an indication of the uncertainties relating to the amount or timing of any outflow; and

(c) the possibility of any reimbursement.

Custodians
Chief Financial Officer
Mr Andrew Betts
Custodians
Chief Financial Officer
Mr Andrew Betts