Final answer:
A provision is recognized in financial statements when the resource has been produced and can be used to produce other goods and services, indicating an obligation due to past events that likely requires an outflow of economic benefits.
Step-by-step explanation:
A provision should only be recognized (i.e., included in the financial statements) when: the resource must have been produced and the resource can be used to produce other goods and services. This implies that the entity has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are accounted for under International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP), often pertaining to items such as warranties, environmental cleanup, restructuring, and litigation.