Non-Financial and Current Liabilities
→ Understanding Non- Financial and Current Liabilities
Objective 1: Understanding the importance of non-financial and current liabilities from a business perspective.
Explanations about non financial liabilities under international standards are based on current: IAS 37 Provisions, Contingent Liabilities and Contingent Asset.
It is important for businesses to properly account for their liabilities so they can keep an eye on their cash flows: * Taking advantage of supplier discounts * Controlling expenses and Accounts payable
→ Recognition and Measurement
Objective 2: Define liabilities, distinguish financial liabilities from other liabilities and identify how they are measured.
Definition in IFRS and CICA Handbook
A liability is an obligation that arises from past transactions or events, which may result in a transfer of assets or provision of services.
Liabilities have 3 essential characteristics: 1) They embody a duty of responsibility 2) The entity has little or no discretion to avoid the duty 3) The transaction or event that obliges the entity has occurred
A liability relates to a transaction that has occurred (the goods were purchased, they have been delivered and title has passed. Therefore an economic obligation exists at the date of the statement of financial position.
Judgment is needed in many circumstances, with management drawing on evidence such as the entity’s past experience, other entities’ experience with similar items, and opinion of experts and others
The entity’s duty of responsibility is enforceable by legal or equivalent means
A constructive obligation arises when past or present company practice shows that the entity acknowledges a potential economic burden. This comes about because the entity has indicated to others that it will accept a specific responsibility and