Definition
Restructuring Provision
A restructuring provision is the amount a company sets aside for the costs of a planned restructuring, such as plant closures or workforce reductions.
Under Ind AS 37, a company recognises a restructuring provision only when it has a detailed formal plan and has raised valid expectations that it will carry it out. The provision covers direct costs like severance, not ongoing or future operating costs.
Restructuring charges are often shown as exceptional items so that the underlying performance is clear. Because they involve estimates, analysts watch whether provisions are realistic or whether companies create large 'big bath' charges to depress one year and flatter future profits.
Related terms
- Provisions (Accounting)A provision is a liability of uncertain timing or amount that a company recognises when it has a present obligation likely to require an outflow of resources.
- ImpairmentImpairment is the write-down of an asset's carrying value when its recoverable amount falls below what is recorded on the balance sheet.
- Exceptional ItemsExceptional items are large, unusual or non-recurring gains and losses disclosed separately in the income statement so they do not distort the underlying performance.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.