Which standard governs the recognition of contingent liabilities?

The correct answer is governed by IAS 37, which specifically addresses provisions, contingent liabilities, and contingent assets. This standard provides a framework for recognizing, measuring, and disclosing liabilities that may arise in the future based on uncertain events.

Contingent liabilities are obligations that may arise depending on the outcome of future events, such as pending lawsuits or warranty claims. IAS 37 outlines the criteria for recognizing these liabilities in the financial statements, emphasizing that a contingent liability should be recognized when it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. It also stipulates the requirement for disclosure in cases where the conditions for recognition are not met.

Other standards mentioned, such as IFRS 7, relate to financial instruments and their disclosures but do not focus specifically on contingent liabilities. IFRS 15 deals with revenue recognition and the transfer of goods and services rather than liability recognition. IAS 10 focuses on events after the reporting period, which is different from the recognition and measurement of contingent liabilities. Thus, IAS 37 is the standard that best fits the recognition of contingent liabilities.