Chapter 10 - provisions and contingencies

Question 1

provision

Answer 1

a liability of uncertain timing or amount

Question 2

advanced data analysis

Answer 2

Data analysis tools can process large volumes of historical data to identify patterns and trends that may be overlooked by humans.

More reliable measurements of provisions may be formed in the future from these insights.

Question 3

Robotic process automation

Answer 3

Repetitive tasks can be automated by RPA, increasing efficiency and reducing human error.

These tasks may include data extraction from databases and spreadsheets and performing calculations.

Question 4

Scenario modelling with artificial intelligence

Answer 4

The simulation of future scenarios by AI can assess their impact on provisions and estimates. This enables the evaluation of the sensitivity of provisions to different assumptions.

Question 5

Predictive modelling with machine learning

Answer 5

The prediction of future outcomes can be made by AI learning from historical data. For example, the reliability of estimates of warranty provisions can be improved based upon historical claim data being used.

Question 6

Natural language processing

Answer 6

NLP is a form of AI that understands and manipulates human language. It can be used to analyse contracts, legal documents and meeting notes to extract information.

Question 7

Provision double entry

Answer 7

Dr expense (SPL)
Cr provision (SFP)

Question 8

Provision no longer needed

Answer 8

Dr provision (SFP)
Cr SPL

Question 9

Increase in provision

Answer 9

Dr expense (SPL)
Cr Provision (SFP)

Question 10

Decrease in provision

Answer 10

Dr Provision (SFP)
Cr Expense (SPL)

Question 11

provision for restructuring:

Answer 11

programme that is planned and controlled by management, and materially changes either:

• the scope of a business undertaken by an entity or
• the manner in which that business is conducted’ (IAS 37, para 10).

A provision for restructuring may only be made if:

• a detailed, formal and approved plan exists and
• the plan has been announced to those affected (generally employees).

The provision should:
- include direct expenditure arising from restructuring
- exclude costs associated with ongoing activities.

Question 12

For each class of provision, an entity should disclose:

Answer 12

• opening and closing balance and movements during the year
• a brief description of the nature of the obligation and the expected timing of any resulting outflows, including
• an indication of the uncertainties about the amount and timing of outflows.

Question 13

Recognising virtual certain asset

Answer 13

Dr receivable
Cr SPL (other income)