Provisions for liabilities
Theory:
- Accruals are liabilities the due date or the amount of which are more certain than for provisions,
- Established in the amount of (i) probable liabilities due in the current period, (ii) resulting from services performed by counterparties or an obligation to perform future services for employees, based on the current operations,
- the amount of the liability can be reliably estimated (iii).
Practice - examples of errors
- Accruals are not reliably estimated or the estimates are not adequately documented and are based on feelings
- Certain types of accruals are not recognised, like costs of holiday leaves,
- Accruals often recorded on the basis of the events that are certain (e.g. invoices received after the balance sheet date)
