Contingent Liabilities: Issues and Practice; Aliona Cebotari; imf working Paper 08/245; October 1, 2008

Annex I. Accounting/Statistical Standards and Contingent Liabilities 
 
Accounting standards are generally concerned only with those liabilities that are based on 
explicit obligations based on contracts or laws, limiting them to some contingent liabilities 
and social benefits. The standards include requirements and guidelines on when these 
liabilities should be: (i) “recognized,” meaning formally recorded in the financial statements 
of the government as a liability or expense, or (ii) “disclosed,” meaning reported in notes or 
narratives that are regarded as an integral part of the financial statement. This section 
discusses the requirements for recognition and disclosure of contingent liabilities under 
internationally recognized standards in accounting (IPSAS for the public sector and IFRS for 
the private sector; Box A1) and statistical reporting (the Government Finance Statistics 
Manual, GFSM 2001).
It also discusses the issues related to the measurement of these 
liabilities under these standards. 
Box A1. Accounting Standards and Standard Setters 
There are two main internationally-recognized accounting standards: one for the private sector companies called 
International Financial Reporting Standards (IFRS) and one for the public sector, developed on the basis of the 
IFRS, called International Public Sector Accounting Standards (IPSAS). 
• The IFRS, the set of international accounting standards and interpretations for the private sector, were 
developed by the International Accounting Standards Board (IASB) and has now replaced local standards in 
many countries, including those in the European Union. Many of the standards forming part of the IFRS are 
known by the older name of International Accounting Standards (IAS). The IASs were issued between 1973 
and 2001 by the IAS Committee, which was reconstructed in early 2001 into the IASB. In April 2001 the 
IASB adopted all IASs and continued their development, calling the new standards IFRS.
• IPSAS is a set of accounting standards for the public sector based on IFRS that is issued by the International 
Federation of Accountants (IFAC), and more specifically by one of its standard-setting Boards (IPSAS 
Board).
The U.S. is perhaps the only major country that has not adopted the international standards (or standards mostly 
consistent with these) for either the private or the public sector. The U.S. generally accepted accounting principles 
(U.S. GAAP) are perhaps the most fully developed, comprehensive set of standards available, and they may do the 
best job of capturing the costs and risks of guarantees and other commitments, although they are not very 
dissimilar to IFRS. 
In 2002, the IASB and the U.S. Financial Accounting Standards Board (FASB) agreed to work towards bringing 
the IFRS and U.S. GAAP closer to each other (the Norwalk Agreement). In February 2006, the IASB and FASB 
issued a Memorandum of Understanding including a program of topics on which the two bodies will seek to 
achieve convergence by 2008.