Provisions for liabilities
Theory:
- Provisions for liabilities recorded when the payment date or amount are not certain (IAS 37 par. 7, 10) ,
- Provisions are established when (i) a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event), (ii) payment is probable ('more likely than not'), and (iii) the amount can be estimated reliably. ( IAS 37 par. 14):
Practice - examples of errors
- Provisions are not reliably assessed or estimates are not adequately documented, they are based on feelings
- Provisions are not established as long as the liability is not confirmed or payable although the provision meets the recognition criteria (i, ii, iii)
- Provisions are established no matter if the requirement results from past events (e.g. future modernisation, budgeted operational losses).
