What are the recognition criteria for provisions?

Recognition criteria for provisions are the conditions that must be met in order to recognize a liability in the form of a provision on a company's financial statements. These criteria typically include the existence of a present obligation, a probable transfer of economic benefits, and a reliable estimate of the amount required to settle the obligation. A present obligation arises from past events, such as an agreement, legal requirement, or a constructive obligation. It must also be probable, meaning that it is more likely than not to occur. Furthermore, the amount of the provision needs to be reliably estimated, which may involve making assumptions and using judgment based on available information. Compliance with these recognition criteria is necessary to ensure accurate and transparent financial reporting.

This mind map was published on 27 August 2023 and has been viewed 100 times.