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What is the diffrence between Provision and Contingent Liability?

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تم إضافة السؤال من قبل Muhammad Faheem , Consultant- Accounts, Audit & Taxation , Basim Associates
تاريخ النشر: 2013/12/10
Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

Provision made for known or specified liabilities which may occur in future is provision for liabilities whereas Contingent liability is provision made for unknown liabilities which may or may not occur in future.

Aziz ur Rehman ur Rehman
من قبل Aziz ur Rehman ur Rehman , Assistant Manager Finance , Central Power Puchasing Agency (CPPA)

A provision is a liability of uncertain timing or amount.

A contingent liability is: 

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

Menerva Melad
من قبل Menerva Melad , Account Executive, Key Accounts , Graphic Home Company

A provison is an amount from profits that has been put aside in a company's accounts to cover a future liability.  It is recognized on the balance sheet and also expensed on the income statement, and the resulting impact of a provision is a reduction in the firm's equity. Provisions can be made for doubtful debts, guarantees, depreciation, amortization, depletion, pensions, accruals, etc.

Ayas Al Gul MBA CPA
من قبل Ayas Al Gul MBA CPA , Regional Finance Director , Fujitsu Technology Solutions FZ LLC

 

The Difference in certainty loss and accountability, Provision is necessary to account and recognize in your statement, While contingent liabilities are not , beside that its not required to provide for contingent liabilities in your books at year end ( eg. postponed contracts or deals , possible issue in some contracts may cause penalties in future, board decision to close one of companies branches stc.....)  , however its important to disclose in Audit report and estimate this as a future cost or liability.

 

مستخدم محذوف‎
من قبل مستخدم محذوف‎

i agree with Aziz Ur Rehman Rana.

HANNA SABA
من قبل HANNA SABA , Team Leader (Administrative Support), including translation, editing, and writing , Deloitte

A provison is an amount from profits that has been put aside in a company's accounts to cover a future liability.  It is recognized on the balance sheet and also expensed on the income statement, and the resulting impact of a provision is a reduction in the firm's equity. Provisions can be made for doubtful debts, guarantees, depreciation, amortization, depletion, pensions, accruals, etc.

On the other hand, a continegent liability is a potential obligation that may be incurred depending on the outcome of a future event. A contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event. A contingent liability is recorded in the books of accounts only if the contingency is probable and the amount of the liability can be estimated.

Outstanding lawsuits and product warranties are common examples of contingent liabilities.For example, a company may be facing a lawsuit from a rival firm for patent infringement. If the company's legal department thinks that the rival firm has a strong case, and the company estimates that the damages payable if the rival firm wins the case are $2 million, it would book a contingent liability of this amount on its balance sheet. If, on the other hand, the company's legal department is of the opinion that the lawsuit is frivolous and very unlikely to be won by the rival company, no contingent liability would be necessary. 

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