Which of the following is NOT a criterion to recognize a provision?

The recognition of a provision requires meeting specific criteria as outlined in financial reporting standards. The correct answer identifies that the event must be wholly probable as not being one of these required criteria.

For a provision to be recognized, there must typically be a present obligation arising from a past event, suggesting that the entity has a legal or constructive obligation to settle the provision. Additionally, it must be probable that outflow of resources—such as cash or other assets—will be required to settle that obligation. Lastly, the amount of the obligation should be able to be estimated with sufficient reliability.

The threshold for probability in the context of recognizing a provision is generally “more likely than not,” meaning that it must be probable but not necessarily wholly probable. This is a key distinction, as a higher standard of certainty would not align with the broader framework dictated by financial reporting guidance, which allows for recognition based on a reasonable estimation of future obligations rather than an absolute certainty of occurrence.

This recognition framework is crucial to provide a faithful representation of the entity’s financial position and potential liabilities, enabling stakeholders to understand the risks and obligations of the organization.