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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Basis of provision
What does it mean exactly to discuss the BASIS of a provision?
A provision is an example of an accounting estimate.
The basis on which it has been estimated by management will include management’s assumptions.
To understand how a provision has been calculated is a first step in determining is the risk of misstatement and what audit evidence should be obtained to ensure that it is materially correctly stated.
For example, you would expect a provision for product warranties to be calculated based on a % of sales and the average cost of repair or replacement product.