The Recognition of Provisions: Evidence from BIST100 Non-financial Companies

Abstract

The objective of financial reporting is to provide reliable and relevant information to the users of financ ial statements. Some of the information that presented in the financial reports is based on management judgments. Provisions are one of the main outputs of these management judgments and intent. The recognition and disclosure of provisions require the interpretation of probabilities, key assumptions and estimation uncertainty. Therefore recognition of provisions can play an important role in the preparation of financial reporting. Provis ions can also allow companies to use creative accounting practices and to manage earnings because of involving uncertainty. This study focused on the following research questions: What is the position statement of provisions in the financial reports of Borsa Istanbul 100 (BIST100) non-financial companies? What are the provis ion types and trends? In order to give answers to these questions, recognition and disclosure of provis ions in the financial reports have been examined. This study also focused on whether the disclosure of provisions provided on key assumptions and estimation uncertainty is limited or not. To measure the uncertainty degree of companies’ obligations gives trend of provisions that is presented in the financial reports. For this purpose, qualitative and numerical trend analysis has been conducted.