Requirement for Recognition of Provision

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

FINANCIAL ACCOUNTING1
Table of Contents
Introduction............................................................................................................................ 2
Recognition and Measurement Requirements of AASB 137..................................................2
Requirement for Recognition of Provision...........................................................................2
Recognition for Measurement of Provision.........................................................................4
Discussion on the Recognition and Measurement of Provision in Woolworths.......................5
Recognition and Measurement of Provision by Woolworths...............................................5
Accounting Estimates Used by Woolworths........................................................................6
Conclusion............................................................................................................................. 7
References............................................................................................................................. 8

FINANCIAL ACCOUNTING2
Introduction
Accounting for provision is considered as a crucial aspect for the financial reporting
of the business organizations. A provision can be considered as a liability of uncertain timing
or amount. More specifically, provision refers to an amount that the companies set aside for
the possible and uncertain economic obligation that can be developed due to the normal
course of actions of the companies. Business organizations listed in the Australian Securities
Exchange (ASX) are required to comply with the principles and standards of AASB 137
Provisions, Contingent Liabilities and Contingent Assets in order to carry out the financial
reporting operations associated with provisions (aasb.gov.au 2020). The main objective of
this standard is to ensure that the Australian companies are applying the appropriate
recognition criteria and measurement bases in order to account for provision and to ensure
that the companies are disclosing correct and adequate information about provision in the
notes so that the nature, timing and amount related to provision can be understood by the
users (aasb.gov.au 2020). This report aims at discussing the recognition criteria and
measurement bases of provision as per AASB 137 and then to discuss about the disclosure
of provision by Woolworths Group Limited (Woolworths) in compliance with the principles
and standards of AASB 137.
Recognition and Measurement Requirements of AASB 137
As per AASB 137, there are certain recognition criteria and measurement bases that
need to be followed by the business organizations in Australia. These are discussed below
in details.
Requirement for Recognition of Provision
As per AASB 137, Paragraph 14, three particular conditions need to be satisfied in
order to recognize provision by a company. Therefore, the company needs to recognize
provision when:
1. The company has an existing obligation because of any previous even;
2. The company has a likelihood of the necessity of a resource outflow demonstrating
economic benefits for the settlement of the obligation; and
3. The company can make a reliable estimate of the amount of the obligation.
A company must not undertake the recognition of any provision in case all these three
conditions are not satisfied (aasb.gov.au 2020).
Present Obligation – As per AASB 137, Paragraph 15, there are unusual circumstances
where it is not possible for a company to clearly ascertain whether any obligation is there or
not (aasb.gov.au 2020). In these types of circumstances, the company needs to consider a