You are the financial controller of Omega, a listed entity that prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS® Standards). The financial statements for the year ended 30 September 2018 are due to be published shortly. A trainee accountant who is assigned to your department is reviewing the financial statements as part of a training exercise. She has prepared the query arising out of the review below: One of the notes to the financial statements refers to a legal claim made against Omega by Customer X. This relates to losses incurred by Customer X due to Omega supplying this customer with a faulty product. Further investigation revealed that the fault was due to one of Omega’s suppliers, Supplier Y, supplying Omega with a faulty component. This component was used to manufacture the product supplied to Customer X. Therefore, Omega made a legal claim against Supplier Y in respect of that faulty component. The note states that both legal claims will probably succeed. I don’t understand why Omega’s financial statements include liability in respect of the expected settlement of Customer X’s legal claim but do not include an asset in respect of the expected settlement of Omega’s legal claim against Supplier Y. This seems inconsistent. Required: Provide answers to the queries raised by providing answers to the queries raised by the trainee. You should justify your answers with reference to relevant IFRS Standards.

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Contingent Liability As per the IFRS 37 is the accounting standard dealing with contingencies Accord... View the full answer