Provision (voorziening)
A provision is a balance sheet item for an obligation or loss whose size or timing is uncertain and which must be recognised under the reporting rules.
What does provision (voorziening) mean?
A provision is a balance sheet item for an obligation or loss whose size or timing is uncertain and which must be recognised under the reporting rules.
A provision relates to an obligation or loss whose size or timing is uncertain. For mere future operating costs without an applicable basis, no provision arises automatically. Estimate the obligation on the balance sheet date.
How does it work?
art. 2:374(1) DCC knows two kinds. The first: provisions against clearly described obligations that are regarded on the balance sheet date as probable or certain, but whose size or time of arising is not known. The second, which is not mandatory: provisions against expenditure in a following financial year that originates partly before the end of the financial year, in order to spread costs evenly over years.
An impairment of an asset is not shown through a provision (art. 2:374(2) DCC): a doubtful debtor reduces the receivable itself. Medium-sized and large entities show the provision for tax liabilities and the one for pensions separately (paragraph 4). The Richtlijnen deal with this in chapter 252 and, for micro and small entities, B10.
Example
A BV sells appliances with a two-year warranty. At 1 January the warranty provision is € 15,000; during the year € 14,000 of repairs is charged to the provision, leaving € 1,000. On 31 December the board estimates the costs of current warranties at 3% of the € 600,000 turnover still under warranty: € 18,000. Addition: 18,000 − 1,000 = € 17,000 charged to the result. The repair invoice of € 2,300 of 28 December is not a provision but an account payable: amount and moment are fixed.
In the annual accounts
Liabilities side of the balance sheet; specification in the notes depending on class.
Difference from a reserve
A provision is outside equity and has a statutory ground: an uncertain obligation, or a future expenditure with a cause before the balance sheet date that is spread over years. A reserve is equity: retained profit without such a ground. The test is which obligation or expenditure the amount covers and why it already belongs to this financial year.
Common mistakes
- Calling a general profit buffer a provision
- Booking a known exact invoice as a provision
What to watch for
- Record the nature, estimate and support for each provision and review it every year.
- Charge expenditure for which the provision was formed to that provision, not once more as costs.
- Micro and small entities show the provisions as one item (art. 2:395a(4) and 2:396(3) DCC). Medium-sized and large entities split by nature and state which part is long-term (art. 2:374(3) DCC). More: provisions in the annual accounts.
Legal basis and sources
art. 2:374 DCC
Frequently asked questions
What is the difference between a provision and a debt?
With a debt, the amount and moment are fixed. With a provision you estimate size or timing; sometimes it covers not an obligation but an expenditure spread over years.
When is a provision released?
When the obligation lapses or turns out lower than estimated. The surplus is released in favour of the result.
Read more
Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
Get started