Provisions as a non cash expenses

CFA Level II FRA
#1

Hi guys

Under the evaluating quality of financial reports chapter I came across this sentence under the topic of gasp accounting but not economic reality

“Provisions are non cash expenses charged in the current period. Future expenses from such provisions bypass the income statement. In such cases losses recognized in the current period will boost income when reversed”

What is reversed? Provision expenses or the losses? Is this statement trying to say that a company can make a decision in time 2 to reverse depreciation Expense made in time 1 and thus increase profits in time 1? I just don’t get it. Please help

#2

No. Provisions are accounting (loss) reservations for uncertain events and its uncertainty is what differs a provision from ordinary accrual.

Standards strictly prescribe for what events, a provision may be formed. According to IFRS, provision may be formed for:

restructuring, environmental clean-up, settlement of a lawsuit, warranties and customer refunds.

Within financial sector, a regulator may require additional loss provisions beside those mentioned above.