Definitions of Terms

Adjusting events after the balance sheet date

Those post-balance-sheet events that provide evidence of conditions that existed at the balance sheet date and require that the financial statements be adjusted.

Authorization date

The date when the financial statements would be considered legally authorized for issue.

Constructive obligation

An obligation resulting from an enterprise's actions such that the enterprise

• By an established pattern of past practice, published policies or a sufficiently specific current statement, has indicated to third parties that it will accept certain responsibilities; and

• As a result, has created a valid expectation in the minds of third parties that it will discharge those responsibilities.

Contingent asset

A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the reporting enterprise.

Contingent liability

An obligation that is either

• A possible obligation arising from past events, the outcome of which will be confirmed only on the occurrence or nonoccurrence of one or more uncertain future events which are not wholly within the control of the reporting enterprise; or

• A present obligation arising from past events which is not recognized either because it is not probable that an outflow of resources will be required to settle an obligation, or where the amount of the obligation cannot be measured with sufficient reliability.

Current liabilities

Enterprise obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets or the creation of other current liabilities. Obligations that are due on demand or will be due on demand within one year or the operating cycle, if longer, are current liabilities.

Estimated liability

An obligation that is known to exist, although the obligee may not be known, and the amount and timing of payment is subject to uncertainty. Now referred to as provisions.

Events after the balance sheet date

Events that occur after an enterprise's accounting year-end (also referred to as the balance sheet date) and the date they are authorized for issue that would necessitate either adjusting the financial statements or disclosure. The concept is comprehensive enough to cover both favorable and unfavorable post-balance-sheet date events.

Guarantee

A commitment to honor an obligation of another party in the event certain defined conditions are not met.

Indirect guarantee of indebtedness of others

A guarantee under an agreement that obligates one enterprise to transfer funds to a second enterprise upon the occurrence of specified events under conditions whereby (1) the funds are legally available to the creditors of the second enterprise, and (2) those creditors may enforce the second enterprise's claims against the first enterprise.

Legal obligation

An obligation that derives from the explicit or implicit terms of a contract, or from legislation or other operation of law.

Liability

A present obligation of the reporting enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Nonadjusting events after the balance sheet date

Those post-balance-sheet events that are indicative of conditions that arose after the balance sheet date and which thus would not necessitate adjusting financial statements. Instead, if significant, these would require disclosure.

Obligating event

An event that creates a legal or constructive obligation that results in an enterprise having no realistic alternative but to settle that obligation.

Onerous contract

A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received therefrom.

Operating cycle

The average length of time necessary for an enterprise to convert inventory to receivables to cash.

Possible loss

A contingent loss based on the occurrence of a future event or events whose likelihood of occurring is more than remote but less than likely.

Probable loss

A contingent loss based on the occurrence of a future event or events that are likely to occur.

Provision

Liabilities having uncertain timing or amount.

Remote loss

A contingent loss based on the occurrence of a future event or events whose likelihood of occurring is slight.

Restructuring

A program that is planned and controlled by management and which materially changes either the scope of business undertaken by the enterprise or the manner in which it is conducted.