1. Operational Definitions
Provision
A liability of uncertain timing or amount.
Contingent Liability
A possible obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events, OR a present obligation where an outflow of resources is not probable or cannot be measured reliably.
Contingent Asset
A possible asset arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events.
2. Strict Criteria for Recognizing a Provision
A provision must be recognized on the Statement of Financial Position if, and only if, all three of the following thresholds are met:
  1. The entity has a present obligation (legal or constructive) as a result of a past event.
  2. It is probable (defined as more likely than not, i.e., >50% probability) that an outflow of resources embodying economic benefits will be required to settle the obligation.
  3. A reliable estimate can be made of the amount of the obligation.

3. Financial Treatment and Disclosure Matrix
The financial statement treatment depends entirely on the probability of the underlying outcome:
┌───────────────────────────────────────────────────────────────────────────┐
│                        IAS 37 ACCRUAL & DISCLOSURE MATRIX                 │
├─────────────────┬─────────────────────────┬───────────────────────────────┤
│   PROBABILITY   │    OBLIGATION (LIABILITY)│        POTENTIAL ASSET        │
├─────────────────┼─────────────────────────┼───────────────────────────────┤
│ Virtually Certain│ Recognize Provision     │ Recognize Asset               │
│ (>95% Prob.)    │ (Balance Sheet Entry)   │ (Balance Sheet Entry)         │
├─────────────────┼─────────────────────────┼───────────────────────────────┤
│ Probable        │ Recognize Provision     │ Disclose in Footnotes         │
│ (51%–95% Prob.) │ (Balance Sheet Entry)   │ (No Balance Sheet Entry)      │
├─────────────────┼─────────────────────────┼───────────────────────────────┤
│ Possible        │ Disclose in Footnotes   │ Do Nothing                     │
│ (5%–50% Prob.)  │ (No Balance Sheet Entry)│ (No Disclosure)               │
├─────────────────┼─────────────────────────┼───────────────────────────────┤
│ Remote          │ Do Nothing              │ Do Nothing                     │
│ (<5% Prob.)     │ (No Disclosure)         │ (No Disclosure)               │
└─────────────────┴─────────────────────────┴───────────────────────────────┘

 
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