Environmental provision
Apply IAS 37’s recognition criteria: a past obligating event, probable outflow and a reliable estimate. A legal requirement or established practice can create an obligation depending on the facts. Measure the best estimate, discounting where material, and consider whether related initial restoration costs form part of an asset under another standard. A general desire to reduce future emissions does not alone establish a provision.
Worked example
A chemical spill before year end creates a legal duty to clean up the site. If cleanup is probable and the best reliable estimate is $100,000, the entity recognises a $100,000 provision, ignoring discounting and other adjustments.
Common mistake
Recognising a provision for every future environmental initiative without an existing obligation, or waiting until cleanup is paid when recognition criteria are already met.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |