When can provisions for restructuring be recognized?

Provisions for restructuring can be recognized when there is a binding commitment to the restructuring plan, which is typically evidenced by a binding sale agreement or other legally enforceable arrangements. It is important that the organization has a clear obligation to carry out the restructuring that will lead to future economic benefits, and this is established when there are specific, concrete plans in place that cannot be realistically withdrawn.

Having a verbal agreement or merely announcing the restructuring plan does not create the legal commitment necessary for recognizing a provision. A verbal agreement, for example, might lead to uncertain commitments and potential changes, as it lacks the enforceability that a binding agreement provides. Similarly, merely announcing a plan does not imply that the company has entered into a legal obligation to proceed. If the financial statements are already finalized, any required provisions for restructuring would typically need to be recognized beforehand to ensure that they reflect the true and fair view of the financial position at the reporting date.

Therefore, the correct answer relates to the existence of a binding commitment, often demonstrated through a binding sale agreement, making it possible to confidently account for the restructuring provision in the financial statements.