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Please advise me the conflict between the recognisation standard and definition of provision following the IAS 37.
IAS 37 states that: (Definition)
Provision is a liability of uncertain amount or timeRecognition standards
Provision should be recognised:
When a reliable estimate can be made of amount involved
Conflict here is in definition of liability of uncertain amount, while recognisation standard is realiable estimate amount
Reliable in this context does not mean 100% accurate. It means rational (or reasonable) and that risk and uncertainty has been taken into account when estimating the amount (i.e. that it is not just a guess 🙂 ) and that there will be a liability (i.e. it is not contingent on something else happening).
The extent to which this is examined in Paper FA is covered in our free lectures 🙂
Thanks your explaination, Mr. John. So “Reliable” means that there are reasonable basics or existence of basics to estimate value of provision, isn’t it?
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