When you have figured out the period and the fact that this expense has to be recognized, a final question arises and this is a tricky one. It does not have to be difficult, but depending on the situation may require consultation and extra amount of resources in the form of time and money to come up with a figure to put into the accounts.

Every expense recognized needs to be reliably measured. The first condition of recognizing assets, liabilities, income and expenses is the reliable measurement. If you’re not able to do so, the line in question is hardly put into the accounts. Depending on the nature of this provision, it may be simply calculated, but it also may require sophisticated and specific knowledge. An example of an easy situation is a one-time compensation due in case of any failure to fulfill contractual obligations. A more complex calculation comes into play in case of restructuring provisions or environmental charges. It’s always wise to be more conservative than optimistic as this creates onetime huge loss, yes, but in case the situation is solved in brighter colors, a profit may be recognized in the next period. The conservative figure of course needs to base on some reasonable information or consideration.

So really think through how much resources will you be required to give up and don’t forget that over-provisioning is not a bad thing necessarily.