PracticeConsultingStandards – Twin attack on provisions

Standards - Twin attack on provisions

New accounting standards for provisions were launched simultaneously today by the UK's Accounting Standards Board and the International Accounting Standards Committee, writes John Stoydyk.

The UK standard applies to financial years ending after 23 March 1999 and, said the ASB, ?there are no differences of substance? between the two.

ASB chairman Sir David Tweedie also led the IASC sub-committee that drafted the international standard ? reflecting his crusade against the ?big bath? provisions that became popular in the 1980s.

The new FRS 12 and IAS 37 define provisions as a ?liability of uncertain timing or amount? and restrict their recognition in accounts until the entity incurs an obligation to pay such sums to a third party.

?In the past, provided your sums were sufficiently detailed, all sorts of things could be rolled into a provision,? said ASB technical director Allan Cook.

Restructuring businesses are addressed by specific paragraphs stipulating that provisions cannot be created by management decisions alone.

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