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Saturday, May 1, 2010

Constructive obligation

Constructive obligation is an obligation that derives from an entity’s actions where:

(a) by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and

(b) as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

Source: IAS 37 Provisions, Contingent Liabilities and Contingent Assets