When must a guarantee of indebtedness first be disclosed?

The correct approach to the timing of disclosing a guarantee of indebtedness is when payment is reasonably possible. This reflects an understanding of the criteria used for financial disclosure obligations, which are generally grounded in the assessment of the likelihood of payment based on existing circumstances and risks associated with the guarantee.

Under accounting standards, a guarantee should be disclosed once it is considered reasonably possible that the guarantee will be called upon. This is crucial for users of the financial statements to assess any potential liabilities or obligations that may not yet be recorded but could impact the financial position in the future. It ensures transparency and provides stakeholders with a clearer view of the entity's financial commitments and risks.

The timing of disclosure at the point when payment is only remotely possible is insufficient, as it does not adequately inform users of significant risks that might lead to an eventual financial outflow. Therefore, recognizing the need to disclose when there are reasonable possibilities of payment aligns with the requirement to present a true and fair view of the entity's financial state, ensuring that all relevant information is available for informed decision-making.