If you live in Ireland and are of a certain age, you’ll remember the above £20 note, and maybe even the older one with W.B Yeats on it. Now, we have euro notes of course, since 2002. So what if you had old pound notes? Well, when currencies change, there is usually a period of time during which the note can be redeemed at the Central Bank of the country in question. That is exactly the case in Ireland.
So where is the accounting in this you may be thinking? Bank notes have their origin in a “promise to pay the bearer on demand” as it used to say on old Irish currency, and still does on some bank notes. In other words, there is a liability on behalf of a bank to pay something – historically something like “pounds of silver”. In the case of the Irish Central Bank, there is still a liability to repay the the bearers of old currency, namely the Irish pounds. As recently reported, the Irish Central Bank has a provision in its accounts (specifically in the Statement of Financial Position) of €350 million for old notes and coins to be redeemed. This is 18 years after the notes ceased to be in circulation and be legal tender. This is why the term “provision” applies, as according to International Financial Reporting Standards a provision is “a liability of uncertain timing or amount”. In this case of the outstanding old Irish currency, the amount is certain, but the timing is not. I would imagine at some stage, the provision will be reversed, maybe 30 years for example, but until then, it will remain on the books of the Irish Central Bank.
On July 14th last, it was reported on the BBC website that the total cost to BP of the Deepwater Horizon oil spill back in 2010 was totalling $61.6 billion – quite an amount. If you look back at the media websites/newspapers over the years you will see the amount rising over time.
Just out of curiosity, I had a look at the most recent financial statements of BP to see what they include on this. Two things came to mind before I looked at the accounts 1) the amounts involved here are material and 2) it spans many reporting periods, so IAS 10 Events after the Reporting Period would probably kick in. Looking at the accounts to 31.12.2015, they contain a separate note which itemises the events of the event on each of the three financial statements. You can see the accounts here – look at note 2. It is quite detailed and I do like how they have shown the effects, and the note is quite detailed. It is not very often such significant events occur, and as far as I can see BP have done a good job on this note. It certainly should provide an investor with enough information to decide whether to invest in the company or not – a key criteria of what financial statements should do.