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Provisions and accruals

Provisions and accruals

Ok being an ACA I should probably know this but it's been a while since I was an auditor. Essentially what is the difference between an accrual and a provision as I think the difference can be quite subtle.

A feature of provisions tends to be there is uncertainty over timing or amount . However, the timing and amount of an accrued cost may also be unknown.

I assume that a accrual is where a transfer or economic benefits is certain to occur (definition of a liability) but a provision is used when a transfer of benefits is definite.

The practical issue is a company is being wound up, redundancy costs are paid to employees after the last day of trading. What factors determine whether these costs are accrued or provided for in the last accounts?

Neil Smith


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05th Feb 2009 11:29

in general terms a provision is made against the book value of an asset, whereas an accrual (or prepayment) is made to ensure known income and costs are accounted for in the period to which they relate.

You are right - being an ACA means you should know how to account for the redundancy costs you describe!

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05th Feb 2009 13:02

FRS 12
I think FRS 12 has some detail of accounting for redundancy costs.

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