On 30^th May 2020, Brownwell Pty Ltd reported to the Australian Taxation Office (ATO) that last year they had accidentally omitted $100,000 of revenue in their Statement of Financial Performance for the year ended 30^th June 2019. The business has yet to hear back from the ATO. This means that the business has underpaid its taxation liability bill for the year by $27,500. The manager asked you, the company accountant whether the underpaid taxation shall be recognised as a liability in the Statement of Financial Position as at 30^th June 2020, or disclosed as a contingent liability in the Notes to the Financial Statements.

Required:

Discuss whether the underpaid taxation shall be recognised as a liability in the Statement of Financial Position as at 30^th June 2020 or disclosed as a contingent liability to the Notes to the Financial Statements. Justify your answer with reference to the Conceptual Framework definition and recognition criteria of a liability, and AASB 137 Provisions, Contingent Liabilities, and Contingent Assets.