As you obtain information that the entity is likely to incur outflows from certain events, you treat them as provisions and recognize respective liabilities and expenses as soon as the information becomes available to you.

However, what happens if it turns out that there have been changes to the situation so that that entity is less likely to incur the expenses in the light of this new information? 

The answer depends on two things:

o    If it’s certain that the entity will not incur those expenses. If it is so, the reserve / provision should be released;

o    If it’s not yet certain, but likely that the entity will not incur those expenses recognizing the provision (or as it is, continuing to recognize the provision) should be considered against at least disclosing the potential liability as contingent liability.

What’s more, if this new information becomes available at the time of preparing the financial statements for the reporting period, this reversal of reserves (and all other considerations) should also be recognized within these statements already. When preparing the statements, the management takes into account all the latest information when assessing and estimating the value of assets and also the probability of realization of provisions (as they’re also what we call “management estimates”).