Provision

Considered as a liability of
uncertain timing or amount
Satisfy three conditions
- Present obligation from a past
event
- Payment must be made
- Possible to estimate reliably

Games in the past
Used provisions to smooth out trends
reported profit
Play on big bath accounting
- Manipulate poor result looks worse
=> Big rise increases next year will
growth the executives bonus

IAS 37
Forbids the use of provision to
manipulate profit by :
Overstating in one year and
recognize higher profits in future.
Abide the obligation, but it can be
either legally binding or constructive