Disclosure of contingent liabilities and commitments in Ind AS Financial Statements

Contingent Liabilities are not recognized in the books of accounts. However, Ind AS-37 Provisions, Contingent Liabilities and Contingent Assets, requires the disclosure of contingent liability in the Financial Statements, if the possibility of an outflow of resources embodying economic benefits is not remote. Also, Ind AS Schedule III requires the disclosure pertaining to various commitments such as Capital commitments, other commitments, and uncalled liability on shares

A contingent liability is:

(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:

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

(ii) the amount of the obligation cannot be measured with sufficient reliability.

The word ‘commitment’ has not been defined in Schedule III. The Glossary of Terms Used in Financial Statements issued by ICAI defines ‘Capital Commitment’ as future liability for capital expenditure in respect of which contracts have been made. Hence, drawing inference from such definition, the term ‘commitment’ would simply imply future liability for contractual expenditure.

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