14 Provisions and contingencies

‘There is nothing more imprudent than excessive prudence.’

Charles Caleb Colton, British clergyman and author

In a nutshell

Provisions and contingencies are liabilities arising from past activities, which a company may have to pay in the future.

To present a realistic and prudent picture of financial performance, company accounts may include provisions for liabilities, even where the extent and timing of these liabilities cannot be precisely determined.

Need to know


A provision is a known yet imprecise liability, i.e. we know it exists but we may not know exactly when it will have to be paid or how much.

A provision has to be made when each of the following occurs:

  • There is a present obligation ...

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