ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

Provisions are defined in IAS 37 as liabilities of uncertain timing or amount. This definition is essential for understanding how businesses recognize their obligations. A provision is recognized when an entity has a present obligation (usually from a past event), it is probable that an outflow of resources will be required to settle the obligation, and the amount can be estimated reliably, even if the exact timing or amount is not known.

The focus on uncertainty is what differentiates provisions from other types of liabilities, such as trade payables or loans, which have clear and known amounts and timings. This aligns with the broader objectives of financial reporting which aim to reflect a true and fair view of a company’s financial position.

In contrast, liabilities with known amounts would not fall under the category of provisions, as they possess certainty. Similarly, assets that are not clearly defined and revenue that cannot be recognized do not relate to provisions, which fundamentally deal with obligations rather than assets or revenues. Understanding this definition is integral for proper financial reporting and compliance with international accounting standards.