Witholding Tax Management

Key red flags in financial statements: 1. Inconsistent revenue recognition. 2. High debt levels. 3. Negative cash flow. 4. Unusual transactions. 5. Frequent changes in accounting policy.

Software doesn't make the accountant, knowledge does.

Nearly all accountants agree on the definition of a provision. It’s common knowledge that it is a liability of uncertain timing or amount. But surprisingly, some take this timing literally to mean they will spend some money in the future. So they make a provision now. 𝗪𝗵𝗮𝘁 𝗶𝘀 𝗮 𝗣𝗿𝗼𝘃𝗶𝘀𝗶𝗼𝗻? Under IAS 37, a provision is a liability. It means you owe money in the future, but you’re not sure exactly when or how much. This comes from something that has already happened. 𝗧𝗵𝗲 𝗖𝗼𝗺𝗺𝗼𝗻 𝗠𝗶𝘀𝘁𝗮𝗸𝗲 Some think that if they plan to make a future expense, like buying equipment, they should make a provision now. But this is not correct. They are confusing "reserves" with "provisions." 𝗟𝗲𝘁 𝗺𝗲 𝗲𝘅𝗽𝗹𝗮𝗶𝗻: 𝗔. 𝗥𝗲𝘀𝗲𝗿𝘃𝗶𝗻𝗴 𝗳𝗼𝗿 𝗙𝘂𝘁𝘂𝗿𝗲 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀: - 𝗪𝗵𝗮𝘁 𝗜𝘁 𝗜𝘀: Planning. You set aside money to use in the future for something specific. - 𝗪𝗵𝗲𝗻: There is no present obligation. It’s a plan for the future. - 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴: This doesn’t show up as a liability in your financial statements. 𝗕. 𝗠𝗮𝗸𝗶𝗻𝗴 𝗮 𝗣𝗿𝗼𝘃𝗶𝘀𝗶𝗼𝗻: - 𝗪𝗵𝗮𝘁 𝗜𝘁 𝗜𝘀: A provision is a liability. It means you owe money because of something that already happened. - 𝗪𝗵𝗲𝗻: The exact time and amount might be unclear, but must pay it. - 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴: It is largely an estimate shown as a liability on the balance sheet. Simple! 𝗕𝗼𝗻𝘂𝘀 𝗖. 𝗡𝗼𝗻-𝗖𝗮𝗻𝗰𝗲𝗹𝗹𝗮𝗯𝗹𝗲 𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝘀? - If you have a non-cancellable contract for future expenses, it’s not a provision. - 𝗪𝗵𝗮𝘁 𝘆𝗼𝘂 𝗵𝗮𝘃𝗲 𝗶𝘀 𝗮 𝗰𝗼𝗺𝗺𝗶𝘁𝗺𝗲𝗻𝘁. - Disclose the commitment in your financial notes. 𝗥𝗲𝗰𝗮𝗽: - 𝗖𝗵𝗲𝗰𝗸 𝗬𝗼𝘂𝗿 𝗢𝗯𝗹𝗶𝗴𝗮𝘁𝗶𝗼𝗻𝘀: Make sure you are correctly using provisions in your financial statements. - 𝗣𝗹𝗮𝗻 𝗬𝗼𝘂𝗿 𝗕𝘂𝗱𝗴𝗲𝘁: Set aside money for future projects, but don’t mix this up with provisions. - 𝗗𝗶𝘀𝗰𝗹𝗼𝘀𝗲 𝗖𝗼𝗺𝗺𝗶𝘁𝗺𝗲𝗻𝘁𝘀: Clearly show any non-cancellable contracts in your financial notes. Good financial reporting is about being clear and precise. Know the difference between provisions, commitments, and reserves to keep your accounting honest and reliable. #myCFOng 𝗣.𝗦. Have you ever mixed these up in your financial reports? If you found this helpful, please repost it so others can learn too.