Provision - a liability of uncertain timing or amount
Liability - a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
A provision should be recognised when:
an entity has a present obligation (legal or constructive) as a result of a past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision should be recognised.
An obligative event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.
A legal obligation is an obligation that derives from a contract (through explicit or implicit terms), legislation or other operation of law.
A constructive obligation is an obligation that derives from an entity's actions where:
by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and
as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
