CHAPTER 4 PROVISION Contingent liability TECHNICAL KNOWLEDGE To understand the nature of a provision. To know the conditions for the recognition of a provision. To know the measurement of a provision. To identify measurement considerations for a provision, : To know the requirements for the recognition of contingent I; iability and contingent asset. 96 Scanned with CamScannery pROVISION A provision is an existing liability of uncertain timing or uncertain amount. The essence of a provision is that there is uncertainty about the timing or amount of the future expenditure. It is this uncertainty that distinguishes provision from other liabilities. The liability definitely exists at the end of reporting period but the amount is indefinite or the date when the obligation is due is also indefinite, and in some cases, the payee cannot - be identified or determined. Actually, a provision may be the equivalent of an estimated liability or a loss contingency that is accrued because it is both probable and measurable, Recognition of provision PAS 37, paragraph 14, provides that a provision shall be recognized as a liability in the financial statements under the following conditions: a. The entity has a present obligation, legal or constructive, as a result of a past event. b. It is probable that an outflow of resources embodying economic benefits would be required to settle the obligation. c. The amount of the obligation can be measured reliably. 97 Scanned with CamScanner