Question

With regard to reporting contingent liabilities on a balance sheet, financial statements prepared under International Financial Reporting Standards (IFRS) will:

Multiple Choice

a) Have fewer contingent liabilities accrued than under U.S. GAAP because the IFRS guideline for "probable" is a higher percentage than the U.S. GAAP guideline for "probable".

b) Have more contingent liabilities accrued than under U.S. GAAP because IFRS requires all lawsuits, environmental problems, and product warranties that are reasonably estimable to be accrued while U.S. GAAP requires accrual only if losses are reasonably possible of being incurred.

c) Have fewer contingent liabilities accrued than under U.S. GAAP because IFRS requires a more subjective evaluation of the probability of occurrence than does U.S. GAAP.

d) Have more contingent liabilities accrued than under U.S. GAAP because the IFRS guideline for "probable" is a lower percentage than the U.S. GAAP guideline for "probable".

Answer 1

Ans :(D) Have more contingent liabilities accrued than under U.S. GAAP because the IFRS guideline for "probable" is a lower percentage than the U.S. GAAP guideline for "probable".

Explanation:

If certain losses are ' probable' in nature than are recorded as contingent liabilities.

Now, probable statnds for " more likely than not to occur." (i.e. the probability that event occur is greater than the probability that it will not")

When Contingent liabilities are recorded under GAAP & IFRS:

GAAP	when probability is approximately 80%
IFRS	when probabilty is greater than 50%

Therefore, under IFRS more contingent liability qualify because probable is a lower percentage than the GAAP.

Hence option (d) is correct as its correctly states the reason. for  more contingent liability under IFRS.