Companies sometimes have outstanding banker's guarantee such as those given in lieu of deposits, performance guarantees given to customers etc. Such banker's guarantees do not meet the definition of contingent liabilities under FRS 37.
The events that may trigger payment by the banks are within the control of the Company and are not uncertain future events. The Company does not have any present obligation until it defaults on payment of lease or fails to perform the contracts. These banker's guarantees should not be described as contingent liabilities of the Company in the financial statements.
Wednesday, June 20, 2007
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