In financial accounting, what are 'provisions'?

Provisions are a specific type of liability that reflects uncertainties regarding timing or the amount of future obligations. They are recognized when an entity has a present obligation (which can result from a past event), it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made regarding the amount.

This definition is essential in ensuring that financial statements provide a true and fair view of an entity's financial position, as provisions ensure that potential future liabilities are accounted for even if the exact timing and amount are not known. Common examples of provisions include warranties, restructuring costs, and legal disputes.

The other options refer to different financial concepts. Obligations of certain timing and amount would be classified as straightforward liabilities, while non-physical assets like goodwill relate to intangible assets rather than provisions. Long-term assets that are not subject to amortization, such as property, plant, and equipment, do not fit the definition of provisions at all. Thus, understanding provisions as liabilities with uncertain timing or amounts is key in financial accounting.