This tip deals with the principle that a contractual or a statutory obligation in itself does not necessarily gives rise to a liability. For example, an entity is obligated by law to pay income tax – however – in terms of accrual accounting principles, there is no obligation to pay tax unless income has been earned. The earning of the income is the past event that gives rise to the obligation to pay the tax. In this example, the liability is classified as a tax liability in accordance with IAS 12.View PDF