Provisions for liabilities
Theory:
- it is necessary to identify employee benefits (retirement bonus / severance pay, jubilee awards) in the amount of reliable liabilities concerning the current period resulting from future benefits (IAS 19, par. 63)
- as at the balance sheet date it is necessary to reliably estimate the value of asses required to comply with the liabilities. The estimate should be made as a management judgment and may require consultation with independent experts.
Practice - examples of errors:
- they sometimes result from the cash approach to estimation of provisions for retirement bonus or jubilee awards while they should be subject to actuary methods and discount.
- incorrect assumptions, e.g. as to employee fluctuation, discount rate, real growth of wages, probability of continued employment in the company.
