IPSAS 19
Active
Provisions, Contingent Liabilities and Contingent Assets
Prescribes the recognition, measurement and disclosure of provisions, contingent liabilities and contingent assets, including the present-value measurement, reimbursements, restructuring and onerous-contract treatment. Effective 1 January 2004.
Active Standard
IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets is the current, active standard issued by the IPSASB for recognising, measuring and disclosing provisions, contingent liabilities and contingent assets. It is effective for annual financial statements covering periods beginning on or after 1 January 2004 (earlier application encouraged).
IPSAS 19 is based on IAS 37 Provisions, Contingent Liabilities and Contingent Assets, adapted for the public sector with commentary on the broader public-sector obligation concept, onerous-contract and future-operating-deficit treatment, and reimbursements.
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Objective, Scope & Exclusions (paras. 1–17)
Objective
To (a) define provisions, contingent liabilities, and contingent assets, and (b) identify when provisions should be recognized, how measured, and what disclosed – plus required disclosures for contingent liabilities and contingent assets.
Applies to an entity preparing accrual-basis financial statements, in accounting for provisions, contingent liabilities, and contingent assets
"Provision" is sometimes used elsewhere for depreciation, impairment, or doubtful debts – those are asset carrying-amount ADJUSTMENTS, not addressed by this Standard (para. 16).
Scope exclusions (para. 1)
Social benefits within IPSAS 42's scope Executory contracts, UNLESS onerous Insurance contracts (relevant international/national standard) Items covered by another IPSAS Income taxes or income tax equivalents Employee benefits, EXCEPT termination benefits from a restructuring Financial instruments/guarantees within IPSAS 41's scope Contingent consideration of an acquirer in a public sector combination (IPSAS 40)
Restructuring provisions (including discontinued operations) ARE within scope – IPSAS 44 may require additional disclosures (para. 6).
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Definitions (para. 18)
Core terms
Provision
A liability of uncertain timing or amount.
A legal obligation
Derives from a contract (explicit/implicit terms), legislation, or other operation of law.
A constructive obligation
Derives from an entity's own actions: an established pattern of past practice, published policies, or a sufficiently specific current statement, that creates a valid expectation in others that it will discharge certain responsibilities.
An obligating event
An event creating a legal or constructive obligation that leaves the entity no realistic alternative to settling it.
Contingencies, executory/onerous contracts & restructuring
Contingent liability
(a) A possible obligation from past events, confirmed only by uncertain future events not wholly in the entity's control; OR (b) a present obligation not recognized because outflow isn't probable, or amount can't be measured reliably.
Contingent asset
A possible asset from past events, confirmed only by uncertain future events not wholly in the entity's control.
Onerous contract
A contract where unavoidable costs of meeting the obligations exceed the economic benefits/service potential expected under it.
Restructuring
A management-planned and controlled program that materially changes the scope of an entity's activities, or the manner in which they're carried out.
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Provisions vs Other Liabilities & the Provision/Contingency Relationship (paras. 19–21)
Provisions vs payables/accruals
Liability typeDistinguishing feature
PayablesFor goods/services received/supplied, INVOICED or formally agreed
AccrualsFor goods/services received/supplied, NOT yet paid/invoiced/formally agreed – less uncertainty than provisions
ProvisionsUncertain TIMING OR AMOUNT of the future expenditure required
Provisions vs contingent liabilities – the key line
In a general sense, all provisions ARE contingent (uncertain in timing or amount). But this Standard reserves the term "contingent" for items NOT recognized – where existence is confirmed only by uncertain future events outside the entity's control.
More likely than not that a present obligation EXISTS → recognize a PROVISION (if criteria met). More likely that no present obligation exists → disclose a CONTINGENT LIABILITY (unless remote)
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Recognition – Present Obligation & Past Event (paras. 22–34)
The three-part recognition test (para. 22)
Present obligation (legal or constructive) as a result of a PAST EVENT PROBABLE that an outflow of resources embodying economic benefits/service potential will be required A RELIABLE ESTIMATE can be made of the amount
If ANY condition fails → no provision recognized. Where unclear whether a present obligation exists, it is DEEMED to exist if, on all available evidence, it's MORE LIKELY THAN NOT true at the reporting date (para. 23).
No realistic alternative – the "obligating event" test
Enforceable by LAW (legal obligation), OR Creates VALID EXPECTATIONS in other parties (constructive obligation)
No provision for future operating costs: financial statements reflect position at the reporting date, not the future – costs to continue ongoing activities are never provisioned (para. 26). A management/governing body DECISION alone does NOT create a constructive obligation unless communicated to affected parties before the reporting date, in a sufficiently specific manner (para. 28).
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Contingent Liabilities & Contingent Assets (paras. 35–43)
Contingent liabilities – never recognized
An entity shall NOT recognize a contingent liability – it's DISCLOSED instead (unless outflow probability is remote).
Joint and several liability → the portion expected to be met by OTHERS is a contingent liability; the entity's own probable portion IS a provision (para. 37) Reassessed CONTINUALLY – if outflow becomes probable, a provision is recognized in the period the probability changes (para. 38)
Contingent assets – never recognized either
An entity shall NOT recognize a contingent asset – recognizing one risks recognizing revenue that may never be realized (para. 41).
DISCLOSED where an inflow is PROBABLE (para. 42) Reassessed continually; if it becomes VIRTUALLY CERTAIN and reliably measurable → recognize the asset AND related revenue, in the period the change occurs (para. 43)
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Measurement – Best Estimate (paras. 44–49)
The core measurement rule
Provision = Best estimate of the expenditure required to settle the present obligation at the reporting date
= what the entity would rationally pay to settle, or transfer to a third party, at the reporting date – even where actual settlement/transfer would be impossible or prohibitively expensive (para. 45).
Large POPULATION of items → "expected value" – weight all possible outcomes by their probabilities (para. 47) SINGLE obligation → the most likely individual outcome, adjusted toward other possible outcomes if they skew mostly higher or lower (para. 48)
Worked example – expected value method (warranty)
Ultrasound scanner warranty: minor defect repair CU1m if universal, major defect CU4m if universal
Past experience: 75% no defects, 20% minor defects, 5% major defects across the equipment population.
Expected value = (75% × nil) + (20% × CU1m) + (5% × CU4m) = CU400,000. The provision is measured BEFORE tax or tax-equivalents (para. 49).
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Risks & Uncertainties, Present Value, Future Events, Expected Disposal of Assets (paras. 50–62)
Risks, uncertainties & present value
Risk = variability of outcome; may increase the measured liability. Caution is needed under uncertainty, but uncertainty does NOT justify excessive provisions or deliberate overstatement (para. 51).
Material time value of money → provision = PRESENT VALUE of expected settlement expenditures
Discount rate: a PRE-TAX rate reflecting current market assessments of the time value of money and liability-specific risks – must NOT double-count risks already reflected in the cash flow estimates (para. 56).
Future events & expected asset disposal
Reflected in the provision amount ONLY where there's SUFFICIENT OBJECTIVE EVIDENCE they will occur (e.g. expected technology improvements reducing clean-up costs, or new legislation VIRTUALLY CERTAIN to be enacted) (paras. 58–60)
Gains from the EXPECTED DISPOSAL of assets are NEVER taken into account in measuring a provision – even if closely linked to the event giving rise to it. Recognized separately, at the time specified by the relevant asset Standard (para. 61).
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Reimbursements & Changes in Provisions (paras. 63–72)
Reimbursements – a separate asset, virtually certain
Reimbursement recognized only when VIRTUALLY CERTAIN, as a SEPARATE asset, capped at the provision amount
E.g. insurance, indemnity clauses, supplier warranties. The provision is for the FULL liability; the reimbursement asset is recognized separately. May be presented NET in the statement of financial performance (para. 64). If the entity has NO liability should the third party fail to pay, those costs aren't included in the provision at all (para. 67).
Reviewing & using provisions
Reviewed at EACH reporting date, adjusted to the current best estimate Reversed if outflow is no longer probable (para. 69)
Where discounting is used, the carrying amount increases each period from the passage of time – recognized as INTEREST EXPENSE (para. 70). A provision is used ONLY for expenditures for which it was originally recognized – applying it to unrelated expenditures conceals the impact of two different events (para. 71–72).
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Future Operating Net Deficits & Onerous Contracts (paras. 73–80)
Future operating net deficits – never provisioned
Provisions shall NOT be recognized for net deficits from future operating activities – they fail the liability definition entirely. Instead, an EXPECTATION of future deficits is a signal to test the related ASSETS for IMPAIRMENT (IPSAS 21/26) (paras. 73–75).
Onerous contracts
Present obligation (net of recoveries) under an ONEROUS contract → recognized and measured as a provision
Unavoidable costs = the LOWER of the cost of fulfilling the contract and any compensation/penalties from failing to fulfill it. Cost of fulfilling = incremental costs (labor, materials) PLUS an allocation of other directly-related costs (e.g. relevant depreciation) (paras. 79–79A). Any asset impairment from fulfilling the contract is recognized FIRST, before a separate onerous-contract provision (para. 80).
Executory contracts that are NOT onerous fall entirely outside this Standard's scope (para. 78).
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Restructuring Provisions (paras. 81–96)
Constructive obligation to restructure – BOTH conditions (para. 83)
A DETAILED FORMAL PLAN identifying: the activity/unit concerned; principal locations affected; location/function/approximate number of employees to be compensated; expenditures to be undertaken; and the implementation timeline Has RAISED A VALID EXPECTATION in those affected – by starting implementation or announcing main features to them
No obligation from a SALE OR TRANSFER of operations arises until there's a BINDING agreement (para. 90) – even a public announcement of intent to sell isn't enough on its own. Public sector transfers between controlled entities at no/nominal consideration follow a government directive and typically lack a "binding agreement" in the ordinary sense – an obligation exists only once there IS a binding transfer agreement (para. 92).
What a restructuring provision includes – and excludes (paras. 93–96)
DIRECT expenditures that are (a) necessarily entailed by the restructuring, AND (b) NOT associated with ongoing activities
Retraining or relocating CONTINUING staff Marketing Investment in new systems and distribution networks Future operating net deficits up to the restructuring date (unless from an onerous contract) Gains on expected asset disposal (per §7, even if the sale is part of the restructuring)
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Disclosure Requirements (paras. 97–108)
Provisions – per class (paras. 97–98)
Carrying amount at the beginning AND end of the period Additional provisions made in the period, including increases to existing ones Amounts USED (incurred and charged against the provision) during the period Unused amounts REVERSED during the period The increase from the passage of time (discount unwinding), and the effect of any discount-rate change A brief description of the obligation's nature and expected timing of outflows An indication of the uncertainties about amount/timing (major assumptions concerning future events, where relevant) The amount of any expected reimbursement, and any related asset recognized
Comparative information is NOT required for the provisions reconciliation.
Contingent liabilities & contingent assets (paras. 100, 105)
Contingent LIABILITY: unless remote, disclose a brief description, plus (where practicable) an estimate of financial effect, uncertainty indication, and reimbursement possibility Contingent ASSET: where an inflow is probable, disclose a brief description and (where practicable) an estimate of financial effect
Classes for aggregation must be sufficiently SIMILAR – e.g. it's inappropriate to combine environmental restoration costs with amounts subject to litigation into one class (para. 101). Where a provision and a contingent liability share the SAME circumstances, disclosures must show the LINK between them (para. 102).
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Worked Example – Present Value of a Provision (Illustrative Example IE1–IE2)
Discounting a 5-year provision at 12%
Expected value at end of Year 5 = CU2,000 (not risk-adjusted); discount rate 12%
Present value increases each year as the obligation approaches settlement – the increase is recognized as INTEREST EXPENSE (para. 70).
Point in timePresent valueInterest expense
Current reporting period (initial)CU1,134.85–
End of Year 1CU1,271.04CU136.18
End of Year 2CU1,423.56CU152.52
End of Year 3CU1,594.39CU170.83
End of Year 4CU1,785.71CU191.33
End of Year 5CU2,000.00CU214.29
Decommissioning liability under the current value model – Appendix B example
Nuclear power plant: original cost CU120,000 (incl. CU10,000 decommissioning component, PV of CU70,400 payable in 40 years at 5%); revalued at Dec 31, 20X2
A market-based discounted cash flow valuation of CU115,000 is obtained, including an allowance of CU11,600 for decommissioning (unchanged estimate, after 3 years' discount unwinding).
Asset (current value model), before deducting the decommissioning allowance = CU126,600 (CU115,000 + CU11,600). Accumulated depreciation is eliminated against gross carrying amount per the entity's revaluation policy. Accumulated surplus reduced by CU10,600 (3 years' depreciation of CU9,000 plus CU1,600 cumulative discount unwinding); revaluation surplus = CU15,600 (revalued CU126,600 less previous net book value CU111,000). Net assets = CU115,000, reconciling exactly to the valuation obtained.
If the decommissioning liability later DECREASES due to technological advances (e.g. by CU5,000), the adjustment is taken to REVALUATION SURPLUS – capped at the amount that would have been recognized under the historical cost model; any excess goes to surplus or deficit (Appendix B, para. B6(b)).
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Effective Date & Amendment Timeline (paras. 109–112)
Amendment history at a glance
Base Standard: periods beginning on/after 1 January 2004.
EffectiveChange
1 Jan 2013Para. 5 deleted; paras. 1, 4 amended – Improvements to IPSAS 2011
1 Jan 2017Paras. 110, 112 (IPSAS 33); para. 6 (Improvements to IPSAS 2015); para. 37 (IPSAS 37, applied alongside)
1 Jan 2018Paras. 2, 3 deleted; para. 14 amended – Applicability of IPSAS & IPSAS 39
1 Jan 2019New para. 4A (IPSAS 40); paras. 1, 12, 19, 77 amended, paras. 7–11, 99, 104 deleted (IPSAS 42, Social Benefits)
1 Jan 2023Para. 4 – IPSAS 41, Financial Instruments
–New paras. 6A, AG1–AG20; para. 18 amended – Collective and Individual Services (Amendments to IPSAS 19), Jan 2020
The Collective and Individual Services amendment is significant for governments: it clarifies that public sector entities do NOT recognize a provision for collective services (e.g. national defense) provided simultaneously to the whole community.
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Relationship to IAS/IFRS – Comparison with IAS 37
Comparison – IPSAS 19 vs IAS 37
IPSAS 19 is drawn primarily from IAS 37 (1998), Provisions, Contingent Liabilities and Contingent Assets.
TopicDifference
Applicability clarificationsAdditional commentary throughout to clarify public sector applicability; clarifies exclusion of IPSAS 42 social benefits
Onerous contractsBlack-letter modified/supplemented to clarify the provision is the present obligation NET OF RECOVERIES
Termination benefits scopeClarifies restructuring-related termination benefits ARE within scope, though employee benefits generally are excluded
Terminology"Revenue," "statement of financial performance" (IPSAS 19) vs "income," "income statement" (IAS 37)
DefinitionsIncludes an additional definition for "executory contracts," not present in IAS 37
Collective/individual servicesAdditional guidance clarifying no provision is recognized for collective services – a public-sector-specific concept
Embedded IFRIC guidanceAppendix B (based on IFRIC 1) and Appendix C (based on IFRIC 5) are AUTHORITATIVE parts of IPSAS 19 – under IFRS, these are separate documents
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Statement / Process Mapping
Provision vs contingency – decision map
- Is there a present obligation from a past event, with no realistic alternative to settling it? If NO → no liability at all
- Is settlement PROBABLE (more likely than not) AND reliably estimable? → recognize a PROVISION (§4, §6)
- Is a present obligation POSSIBLE but not probable, or probable but NOT reliably measurable? → disclose a CONTINGENT LIABILITY, unless remote (§5)
- Is there a POSSIBLE asset dependent on uncertain future events outside the entity's control? → disclose a CONTINGENT ASSET if inflow is probable; never recognize (§5)
- Is the contract ONEROUS (unavoidable costs exceed expected benefits)? → recognize a provision net of recoveries (§9)
- Is there a detailed, communicated RESTRUCTURING plan? → constructive obligation; provision limited to direct, restructuring-specific costs (§10)
Concept-to-statement mapping table
IPSAS 19 conceptStatement(s)Notes
ProvisionsSOFPRecognized as a liability, best-estimate basis
Discount unwinding on a provisionSOFPerfInterest expense
Reimbursement assetSOFPRecognized separately, capped at the provision amount
Contingent liabilities & assetsNotesNever on the face of the SOFP
Provisions reconciliation, by classNotesOpening/closing, additions, used, reversed, discount unwinding
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Related Standards – Cross-Reference Map
How IPSAS 19 connects across the IPSAS body of literature
StandardNature of the connection
IPSAS 1Contingent liability/commitment note ordering; restructuring disclosure per IPSAS 14 cross-reference (§11)
IPSAS 12Offsetting example – provision expenses reimbursed under a supplier warranty (§8)
IPSAS 13 / 43Onerous lease treatment before/at commencement, and low-value/short-term lease exceptions (§1)
IPSAS 14Adjusting-event settled litigation confirming a present obligation; restructuring announcement disclosure (§4, §10)
IPSAS 20Related party disclosure interaction for planned intra-economic-entity transfers (§10)
IPSAS 21 / 26Impairment testing triggered by expected future operating deficits, and before onerous-contract provisions (§9)
IPSAS 39Employee benefits generally excluded, except restructuring-related termination benefits (§1)
IPSAS 41Financial instruments/guarantees excluded from IPSAS 19's scope (§1)
IPSAS 42Social benefits excluded from scope; several 2019 consequential amendments (§1, §13)
IPSAS 44Additional disclosures where a restructuring meets the discontinued-operations definition (§1)
IPSAS 45Decommissioning/restoration cost provisions capitalized into asset cost; current value model interaction (§12, Appendix B)
IPSAS 47Onerous binding-arrangement guidance defaults to IPSAS 19 in the absence of specific IPSAS 47 provisions (§1)
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Quick-Reference Glossary
Provision
A liability of uncertain timing or amount.
Contingent liability
A possible or unrecognized present obligation dependent on uncertain future events, or one lacking a reliable estimate.
Contingent asset
A possible asset arising from past events, confirmed only by uncertain future events outside the entity's control.
Onerous contract
A contract where unavoidable costs of meeting obligations exceed the expected economic benefits or service potential.
Restructuring
A planned, management-controlled program materially changing the scope or manner of an entity's activities.
Collective services
Services provided simultaneously to the whole community, addressing society's needs as a whole – no provision is recognized for these.
Financial statement key
SOFP Statement of financial position
SOFPerf Statement of financial performance
Notes Notes to the financial statements