Liabilities and provisions

In this lesson

1. 0:00 Auditing liabilities, capital and directors
2. 0:17 Understanding liabilities and provisions
3. 0:57 Contingent liabilities and disclosure
4. 3:15 Audit risks and testing procedures
5. 6:46 Worked example: loan classification and accruals
6. 10:10 Staying focused on liability scope

About this lesson

You'll understand the recognition criteria for provisions, how they differ from contingent liabilities, and why they present particular audit challenges due to the judgement involved in estimating both probability and amount. The video breaks down the key distinctions: provisions are recognised when there's a present obligation, a probable outflow (more than 50% chance), and a reliable estimate can be made, while contingent liabilities are disclosed only in the notes if probability is less than 50% or an estimate cannot be made reliably. Remote contingencies require no disclosure at all. You'll see how this affects both the financial statements and the audit approach. On the audit side, you'll learn the specific procedures auditors perform to test liabilities and provisions: agreeing opening balances to prior year accounts, obtaining loan schedules and agreements, inspecting cash payments, and crucially, discussing management's judgements and obtaining legal confirmations for any litigation or claims. The lesson includes a worked example showing how to identify audit risks (such as incorrect current/non-current classification of loans or unaccrued interest) and respond with targeted audit procedures, helping you tackle similar questions in your exams with confidence.

Duration: 11m