What are the three key recognition criteria for provisions?
There are three key recognition criteria that determine a liability provision:
(1) an entity has a present obligation as a result of a past event;
(2) an outflow of resources to settle the obligation is probable;
(3) a reliable estimate can be made of the amount of the obligation.
The three above criteria support the definition of a provision. If the three provision recognition criteria are not met at the same time, reconsider making the liability provision. Possibly it is required to recognise a contingent liability instead of a provision for liabilites.
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