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AS 29: Provisions, Contingent Liabilities and Contingent Assets

A professional application note for accounts teams: what the standard controls, where it appears in company accounting, how to apply it and what evidence reviewers expect. Animated notes with Play, Pause, Replay, English and Hindi voice options are included below.

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AS 29: Provisions, Contingent Liabilities and Contingent Assets: interactive explanation

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Professional scope: This is an implementation-oriented explanation for accountants, finance managers, controllers and reviewers responsible for company accounts.

1. What this standard controls

A provision is recognised for a present obligation from a past event when outflow is probable and reliably estimable; contingent liabilities are disclosed and contingent assets are not recognised until appropriate certainty exists.

Current position: Included in the ICAI Accounting Standards framework, subject to entity applicability, notified rules and later amendments.

2. Where it appears in the real accounting world

01Litigation, warranty and restoration obligations
02Onerous contracts and restructuring
03Customer claims and regulatory matters
04Contingent assets and insurance recoveries

3. Practical application workflow

  1. Identify the obligating past event and present obligation.
  2. Assess probability of outflow and measurement reliability.
  3. Use the best estimate and discount where materially required.
  4. Review provisions at each reporting date and reverse unused amounts.
  5. Disclose contingent liabilities and avoid recognising contingent assets prematurely.

4. Real-world application example

A company has a legal obligation to repair products sold under warranty. Historical claim data supports a reliable estimate and outflow is probable, so a provision is recognised at the best estimate rather than waiting for individual claims.

5. Journal-entry and accounting record pattern

ProvisionDr Relevant expense / Cr Provision.
UtilisationDr Provision / Cr Bank, payable or inventory as claims are settled.
ReversalDr Provision / Cr Reversal income or related expense when obligation no longer exists.

Entry wording is illustrative. Actual accounts, tax effects, dimensions and narration depend on the entity’s chart of accounts and facts.

6. Month-end and year-end control file

Controls to operate

  • Provision register with owner and legal/operational evidence.
  • Probability and measurement assessment.
  • Roll-forward from opening to closing.
  • Legal-letter and contract review.
  • Contingency disclosure checklist.

Common errors and red flags

  • Using provisions as general reserves.
  • Recognising future operating losses.
  • Failing to discount a material long-term obligation where required.
  • Netting expected reimbursement without criteria.
  • Recognising contingent gains too early.

7. Reviewer questions

  1. What past event creates the present obligation?
  2. Is outflow probable and estimable?
  3. What is the best estimate and uncertainty range?
  4. Has the provision been used only for its original purpose?
  5. What disclosure is needed for contingencies?

Related standards: AS 4, AS 5, AS 7, AS 22

Authoritative reference:

Before approving a material conclusion, check the latest ICAI compendium, notified Companies (Accounting Standards) Rules, entity applicability and subsequent amendments.

ICAI Accounting Standards Compendium →
Companies (Accounting Standards) Rules and amendments →

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Professional note: This educational resource does not replace entity-specific analysis, the latest notified standard, law, regulation, audit judgment or professional advice.