Q：Pump is a company that pipes gas to major consumers. During the year it was prosecuted when toxic gas escaped into the atmosphere. It is probable that it will have to pay approximately $10 million on fines and court costs in two years time.
What should the company report in its financial statements?
A. It should build up the provision over 2 years showing amounts in the income statement each year and may include an envionmental report.
B. It should disclose $10 million as a contingent liability and must disclose an envionmental report explaining the issue.
C. It should build up the provision over 2 years showing amounts in the income statement each year and must include an envionmental report.
D. It should show all the provision in the income statement this year and may include an envionmental report.
A：The correct answer is:
It should show all the provision in the income statement this year and may include an environmental report.
Environmental reports tend to be voluntary unless they fall under standard accounting principles, such as IAS 37 or relate to a specific industry. IAS 37 on Provisions, contingent liabilities and contingent assets states that provisions should be made when there is an obligating event. In this case the costs should be provided as the damage has been done. However IAS 37 requires that the whole provision be put in the accounts this year. If the time value of money is material then the figure should be discounted back to today's values.
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