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Events after the reporting period, provisions and contingencies

Provisions

2.1 Definition

A provision is a ‘liability of uncertain timing or amount’
(IAS 37, para 10).

2.2 Recognition

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a
provision is recognised when:

 there is a present obligation from a past event

 there is a probable outflow of economic benefits

 the probable outflow can be measured reliably.

The accounting entry for a provision is normally:

Dr Profit or loss X

Cr Provisions (SFP) X

2.3 Obligations

An obligation is something that cannot be avoided:

 a legal obligation arises from contracts, laws or legislation

 a constructive obligation arises when an entity’s past practices or published
policies create an expectation that it will discharge certain responsibilities.

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