Reliable estimate of a provision
Use judgement and evidence to estimate the expenditure required to settle the obligation, considering risks, uncertainties and discounting when material. A range of possible outcomes does not automatically prevent a reliable estimate; IAS 37 notes that only in extremely rare cases is no reliable estimate possible. A reliable estimate is not a guarantee that the eventual settlement will equal the recorded amount.
Worked example
A company estimates warranty costs using past claim rates and current product information. If the best estimate is $40,000 and the other recognition criteria are met, it recognises a $40,000 provision even though actual claims may differ.
Common mistake
Refusing to recognise a provision solely because its amount is uncertain, or treating an estimate as reliable only if it is exact.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |