CERTYNEX IFRS ACADEMY

Solvéa's advisers estimate the compensation owed to a customer at between 400,000 and 700,000, with a markedly higher probability around 450,000. The finance director recognises a provision of 700,000 "out of prudence". Where is the error?

The amount should have been discounted, as the compensation is payable within a few months.

The provision should have been equal to the low end of 400,000.

No provision should have been recognised, as the outcome is uncertain.

Taking the worst-case scenario deliberately overstates the provision.