Note: For all scenarios, support your answers with citations from the authoritative IFRS and U.S. GAAP literature.

Scenario 1

Energy Inc. (Energy), an entity operating in the oil industry, is a U.S. subsidiary of a U.K. entity that prepares its financial statements in accordance with (1) IFRS in reporting to its parent and (2) U.S. GAAP in reporting to its U.S.-based lender. Energys operations sometimes result in soil contamination. Energy cleans up any contamination when required to do so under the laws of the particular country in which it operates.

In one of the countries in which Energy operates, there is no legislation requiring cleanup. In that same country, Energy had inadvertently contaminated land in prior years. As of December 31, 20X1, it is virtually certain that a law requiring the remediation of contaminated land will be enacted in this jurisdiction, though it is not expected to be issued until shortly after the year-end.

Required:

Should Energy recognize a provision as of December 31, 20X1, (1) in reporting to its U.K. parent under IFRS and (2) in reporting to its U.S.-based lender in accordance with U.S. GAAP?