CAF-6 · Chapter 1 · Question 2 of 15
Omega Industries causes environmental damage in a country where there is no environmental legislation forcing a cleanup. However, Omega has a widely published internal policy of cleaning up all environmental contamination it causes. According to IAS 37, does an obligation exist?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) A constructive obligation exists because the policy creates a valid expectation.
Explanation
A past event leads to a present obligation (obligating event). Even without legislation, the company's widely published policy creates a valid expectation in other parties, forming a constructive obligation.
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