2. The following subjects, which may result in contingencies, are excluded from the scope of this Statement:

(a) liabilities of life assurance companies arising from policies issued

(b) obligations under retirement benefit plans

(c) commitments arising from long-term lease contracts

(d) taxes on income.

DEFINITIONS

3. The following terms are used in this Statement with the meanings specified:

A contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be confirmed only on the occurrence, or non-occurrence, of one or more uncertain future events.

Events occurring after the balance sheet date are those events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are authorised for issue. Two types of events can be identified:

(1) those that provide further evidence of conditions that existed at the balance sheet date, and

(2) those that are indicative of conditions that arose subsequent to the balance sheet date.

Contingencies

4. The term contingencies used in this Statement is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur. Many such conditions or situations are reflected in accruals in financial statements in following the fundamental accounting concept of accrual.

 5. Estimates are required in financial statements for many on-going and recurring activities of an enterprise. However, the fact that an estimate is involved does not of itself create the type of uncertainty which characterises a contingency, although the procedure for determining the amounts stated in the financial statements may be similar. For example, the fact that estimates of useful life are used to determine depreciation does not make depreciation a contingency; the eventual expiry of the useful life of the asset is not uncertain. Also, amounts owed for services received are not contingencies as defined in paragraph 3, even though the amounts may have been estimated; there is nothing uncertain about the fact that these obligations have been incurred.

6. The uncertainty relating to future events can be expressed by a range of outcomes. This range may be presented as quantified probabilities, but in most circumstances this suggests a level of precision that is not supported by the available information. The range of outcomes can also be presented by general description, using terms ranging from probable to remote.

7. The estimates of the outcome and of the financial effect of contingencies are determined by the judgement of the management of the enterprise. This judgement is based on consideration of information available up to the date on which the financial statements are authorised for issue and will include a review of events occurring after the balance sheet date, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

The Accounting Treatment of Contingent Losses

8. The accounting treatment of a contingent loss is determined by the expected outcome of the contingency. if it is probable that a contingency will result in a loss to the enterprise then it is prudent to accrue that loss in the financial statements.

9. The estimation of the amount of contingent loss to be accrued in the financial statements may be based on information that provides a range of amounts of loss which could result from the contingency. The best estimate of the loss within such range is accrued. When no amount within the range is indicated as a better estimate then any other amount, at least the minimum amount in the range is accrued. Disclosure of any additional exposure to loss is made if there is a possibility of loss in excess of the amount accrued.

10. If there is conflicting or insufficient ~evidence on which to estimate the amount of a contingent loss, then disclosure is made of the existence and nature of the contingency.

11. A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter-claim or claim against a third party. In such cases the amount of any accrual may be determined after taking into account the probable recovery under the claim.

12. The existence and amount of guarantees, obligations arising from discounted bills of exchange and similar obligations undertaken by an enterprise are generally disclosed in financial statements by way of note, even though it is remote that a loss to the enterprise will occur.

13. Amounts accrued for general or unspecified business risk do not relate to conditions or situations existing at the balance sheet date, and therefore are not justified as provisions for contingencies.

The Accounting Treatment of Contingent Gains

14. Contingent gains are not accrued in financial statements since this may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such a gain is not a contingency and accrual of the gain is appropriate.

The Determination of the Amounts at which Contingencies are Included in Financial Statements

15. The amount at which a contingency is stated in the financial statements is based on the information which is available at the date on which the financial statements are authorised for issue. Events occurring after the balance sheet date indicate that an asset may have been impaired or that a liability may have existed at the balance sheet date are therefore taken into account in identifying contingencies and in determining the amounts at which such contingencies are included in financial statements.

16. In some cases each contingency can be separately identified, and the special circumstances of each situation considered in the determination of the amount of the contingency. A substantial legal claim against the enterprise may represent such a contingency. Among the factors taken into account by management in evaluating the contingency are the progress of the claim at the date on which the financial statements are authorised for issue, the opinions of legal experts or other advisers, the experience of the enterprise in similar cases and the experience of other enterprises in similar situations.

17. If the uncertainties which created a contingency in respect of an individual transaction are common to a large number of similar transactions, then the amount of the contingency need not be individually determined, but may be based on the group of similar transactions. Examples of such contingencies may be warranties for products sold and the estimated uncollectable portion of accounts receivable.

These costs are usually incurred frequently and experience provides a means by which the amount of the liability or loss can be estimated with reasonable precision although the particular transactions that may result in a loss are not identified. Accrual of these costs results in their recognition in the same accounting period in which the related transactions took place.

18. Events which occur between the balance sheet date and the date on which the financial statements are authorised for issue may indicate the need for adjustments to assets and liabilities or may require disclosure.

19. The process involved in the authorisation for issue of the financial statements will vary depending upon the management structure and procedures followed in preparing and finalising statements, but the date of authorisation for issue would normally be the date of the Auditors Report which would be subsequent to the approval of the financial statements by the directors

20. Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information for determining the amounts relating to conditions existing at the balance sheet date. For example, adjustments may be made for a loss on a trade receivable account which is confirmed by the bankruptcy of a customer which occurs after the balance sheet date.

21. Adjustments to assets and liabilities are not appropriate for events accruing after the balance sheet date, if such events do not relate to conditions existing at the balance sheet date. An example is the decline in market value of investments between the balance sheet date and the date on which the financial statements are authorised for issue. The fall in market value does not normally relate to the condition of the investments at the balance sheet date, but reflects circumstances which have occurred in the following period. However, disclosure is generally made of events in subsequent periods that represent unusual changes to the condition of assets or liabilities at the balance sheet date; e.g. the destruction of a major production plant by a fire after the balance sheet date.

22. Events occurring after the balance sheet date that are indicative of conditions that arose subsequent to the balance sheet date are disclosed if their non-disclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions. An example of such an event would be a major acquisition of another enterprise.

26. When the effects of events occurring after the balance sheet date are disclosed in the notes to the financial statements, to enable users of financial statements to make proper evaluations and decisions, the information given includes a description of the events and an estimate, if possible, of their financial effects.

27. The amount of a contingent loss should be accrued by a charge in the profit and loss account if:

(a) it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability incurred at the balance sheet date, and

(b) a reasonable estimate of the amount of the resulting loss can be made.

28. The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in paragraph 27 is not met, unless the possibility of a loss is remote.

29. Contingent gains should not be accrued in financial statements. The existence of contingent gains should be disclosed if it is probable that the gain will be realised.

Events Occurring after the Balance Sheet date

30. Assets and liabilities should be adjusted for events accruing after the balance sheet date that provide additional evidence to assist with the estimation of amounts relating to conditions existing at the balance sheet date or that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate.

31. Dividends stated to be in respect of the period covered by the financial statements and that are proposed or declared after the balance sheet date but before approval of the financial statements should be either adjusted for or disclosed.

32. Assets and liabilities should not be adjusted for, but disclosure should be made of, those events accruing after the balance sheet date that do not affect the condition of assets or liabilities at the balance sheet date, but are of such importance that non-disclosure would affect the ability of the users of the financial statements to make proper evaluations and decisions.

Disclosure

33. If a disclosure of contingencies is required by paragraphs 28 or 29 of this Statement, the following information should be provided:

(a) the nature of the contingency

(b) the uncertain factors that may affect the future outcome

(c) an estimate of the financial effect, or a statement that such an estimate cannot be made.

34. If disclosure of events occurring after the balance sheet date is required by paragraph 32 of this Statement, the following information should be provided:

(a) the nature of the event

(b) an estimate of the financial effect, or a statement that such an estimate cannot be made.

Effective Date