ASBE No. 13
Active
Contingencies
Contingencies is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
A three-part framework for uncertain obligations and rights
ASBE No. 13 governs PROVISIONS, CONTINGENT LIABILITIES, and CONTINGENT ASSETS – DESPITE its SHORTER title ("CONTINGENCIES," RATHER than IAS 37's FULLER "Provisions, CONTINGENT Liabilities and CONTINGENT Assets"), this STANDARD covers ESSENTIALLY the SAME three-part FRAMEWORK, BROADLY converged with IAS 37 internationally.
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Scope
Uncertain obligations and possible rights arising from past events
This Standard applies to UNCERTAIN present OBLIGATIONS (PROVISIONS and CONTINGENT liabilities) and POSSIBLE rights (CONTINGENT assets) ARISING from PAST events, WHERE the TIMING or AMOUNT of ANY resulting OUTFLOW or INFLOW REMAINS uncertain.
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Provisions – Recognition Criteria
A present obligation, a probable outflow, and a reliable estimate
A present obligation (legal or constructive) exists as a result of a past eventIt is probable that an outflow of economic benefits will be required to settle the obligationA reliable estimate can be made of the amount of the obligation
ALL THREE criteria must be MET for a PROVISION to be RECOGNISED – CONSISTENT with IAS 37's OWN recognition FRAMEWORK internationally.
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Contingent Liabilities – Disclosed, Not Recognised
Possible obligations, or obligations that aren't probable or reliably measurable
A CONTINGENT LIABILITY – a POSSIBLE obligation WHOSE existence will be CONFIRMED only by FUTURE uncertain EVENTS, or a PRESENT obligation that is EITHER not PROBABLE or CANNOT be reliably MEASURED – is NOT recognised on the BALANCE Sheet, but IS disclosed in the NOTES (UNLESS the possibility of an OUTFLOW is REMOTE).
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Contingent Assets – Never Recognised
Disclosed only where an inflow is probable
A CONTINGENT ASSET – a POSSIBLE asset WHOSE existence will be CONFIRMED only by FUTURE uncertain EVENTS – is NEVER recognised (AVOIDING the RECOGNITION of income that MAY never MATERIALISE), but IS disclosed in the NOTES WHERE an INFLOW of economic BENEFITS is PROBABLE.
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Measurement – Best Estimate
The best estimate of expenditure required to settle the obligation
A PROVISION is MEASURED at the BEST ESTIMATE of the EXPENDITURE REQUIRED to SETTLE the PRESENT obligation at the REPORTING date – CONSIDERING the RISKS and UNCERTAINTIES SURROUNDING the underlying EVENTS and CIRCUMSTANCES.
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Discounting Where the Time Value of Money Is Material
Present-valuing long-dated obligations
WHERE the EFFECT of the TIME value of MONEY is MATERIAL (TYPICALLY for LONGER-dated OBLIGATIONS), the PROVISION amount is the PRESENT value of the EXPENDITURES EXPECTED to be REQUIRED to SETTLE the obligation – CONSISTENT with IAS 37's OWN discounting requirement internationally.
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Common Provisions in Practice
Recurring examples across Chinese enterprises
Product warranty provisionsOnerous contract provisionsRestructuring provisionsLitigation and legal claim provisions
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Worked Example – Recognising a Warranty Provision
Estimating future warranty repair costs
Example: A manufacturer's product warranty obligation
A manufacturer sells RMB 100,000,000 of products during the year, each carrying a 2-year warranty. Based on historical experience, the company estimates warranty repair costs will amount to 2% of sales.
The company recognises a WARRANTY PROVISION of RMB 100,000,000 × 2% = RMB 2,000,000, since a PRESENT obligation EXISTS (from the SALES already MADE), an OUTFLOW is PROBABLE, and a RELIABLE estimate CAN be made based on HISTORICAL experience.
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Worked Example – a Contingent Liability, Disclosed Only
A possible obligation that doesn't yet meet the recognition threshold
Example: An ongoing, uncertain legal dispute
A company is a defendant in a lawsuit seeking RMB 15,000,000 in damages. Legal counsel advises that the outcome is genuinely uncertain, with the likelihood of an adverse outcome assessed as possible, but not probable.
Since an ADVERSE outcome is NOT considered PROBABLE, the company does NOT recognise a PROVISION, but DOES disclose the NATURE of the CONTINGENT LIABILITY, an ESTIMATE of its POTENTIAL financial EFFECT, and the UNCERTAINTIES involved, WITHIN the notes to the financial STATEMENTS.
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Disclosure Requirements
What ASBE No. 13 requires
Carrying amount of provisions at the beginning and end of the period, and movements during the periodNature of contingent liabilities and, where practicable, an estimate of their financial effectNature of contingent assets, where an inflow is probable
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether an outflow of economic benefits is genuinely probable, distinguishing a provision from a mere contingent liability
SIGNIFICANT ESTIMATES
Best estimate of the expenditure required to settle a recognised obligationDiscount rate applied to long-dated provisions
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Relationship to IAS 37
Comparison – ASBE 13 vs IAS 37
FeatureASBE 13IAS 37
Provision recognition criteriaSame three-part testSame three-part test – converged
Contingent liabilities/assetsDisclosed only, not recognisedDisclosed only, not recognised – converged
A GENUINELY thoroughly CONVERGED standard – the SHORTER title is a NAMING difference RATHER than a SUBSTANTIVE one.
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Statement Mapping
Where every contingency-related event lands
EventStatement(s) affectedNotes
Provision recognisedBS ISLiability and expense recognised
Contingent liability/assetNotes onlyNo Balance Sheet or Income Statement recognition
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 8Impairment of Assets – a related, but distinct, form of asset-side uncertainty, addressed separately from this Standard's liability-side focus
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Quick-Reference Glossary
Provision
A liability of uncertain timing or amount, recognised when a present obligation exists, an outflow is probable, and a reliable estimate can be made.
Contingent liability
A possible obligation whose existence depends on future uncertain events, or a present obligation that is not probable or not reliably measurable – disclosed but not recognised.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 13 Contingencies issued
Operative for periods beginning on or after 1 February 2007