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Payables, provisions and contingent liabilities

2.2 Provisions

IAS 37 says that provision is defined as 'a liability of uncertain timing or amount'
(IAS 37, para 10).

Given the uncertainty relating to provisions there is significant scope for accounting
error, or even deliberate manipulation when accounting for provisions.

To reduce the risk of error or manipulation, IAS 37 specifies three criteria that must
be met before a provision can be recognised in the financial statements.

There must be a present obligation (legal or constructive) that exists
as the result of past event.

There must be a probable transfer of economic benefits.

There must be a reliable estimate of the potential cost.

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