Short answer
SKK 6 distinguishes three items that are often confused. A provision is a present obligation with an uncertain amount or timing and is recognized in the balance sheet. A contingent liability is not recognized; it is only disclosed. A contingent asset is neither recognized nor disclosed except when the realization of the benefit is probable. Impairment and bad debts are not provisions at all.
| Current version | SKK 6 (2023), for periods beginning on or after January 1, 2025 |
| Provision | Current obligation with a fixed term or very uncertain maturity. It appears on the balance sheet. |
| Conditional obligation | Not known. It is only explained in the notes, paragraph 5. |
| Conditional asset | Not known. Explained where entry is possible, paragraph 30. |
| The Three Conditions of Knowledge | Past event, possible source of leaks, highly appreciated. |
| The threshold of possibility | More likely than not, paragraph 11 |
| Contract with onerous conditions | The lesser of the loss and the fine, paragraph 22 |
| Depreciation and uncollectible accounts | They are not provisions, paragraph 6 |
Verified on November 8, 2026 by Andi Haxhillari, Certified Accountant. Compared with IFRS 6 (2023), paragraphs 1 to 40, version effective January 1, 2025, and with the November 2015 version containing 49 paragraphs, which is attached below.
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The applicable version is SKK 6, updated in 2023. It applies to accounting periods beginning on or after January 1, 2025, on a prospective basis. This is specified in paragraph 39.
The November 2015 version had 49 paragraphs; the 2023 version has 40. The numbering does not match between the two, so the paragraph numbers on this page are those of the version in effect.
The standard sets out the principles for recognition, measurement, and presentation of provisions, contingent liabilities, and contingent assets. It is comparable to Section 21 of the International Financial Reporting Standard for Small and Medium-sized Entities, published in July 2015.
Paragraph 4 excludes cases dealt with by other standards. Of leases, only contracts with onerous conditions remain included. Construction contracts fall under IAS 8 and income tax under IAS 11.
Paragraph 5 states the fundamental difference in one sentence. The provision is recognized in the statement of financial position. The contingent liability is only explained.
Paragraph 6 prohibits the use of a term that has become customary. Depreciation, impairment, and uncollectible accounts are not provisions, because they adjust the value of assets and do not create an obligation to anyone.
Thus, the “allowance for doubtful accounts” is, in the language of the standard, an adjustment to the carrying amount of accounts receivable. It is presented as a deduction from assets, not as a liability.
This is not a formality. A sum posted to liabilities instead of to the deduction of assets changes the total of the balance sheet and the reports the bank reviews.
A current obligation that is time-limited or highly uncertain. The uncertainty lies in how much and when, not in whether it exists.
An event that creates a legal or constructive obligation. A legal obligation arises from a contract, from legislation, or from other legal acts. A constructive obligation arises from past practices or from announced policies that have created valid expectations in other parties.
Constructive obligation is the part that gets forgotten. A business that for years has been replacing defective products without being legally required has created expectations. And those expectations are an obligation.
A potential liability contingent on future uncertain events beyond the unit's full control. Or an existing liability that is not recognized because the outflow of resources is not expected, or because the amount cannot be measured.
A possible claim arising from past events and confirmed only by uncertain future events.
Paragraph 9 requires that the triggering event have occurred before the reporting date and that the entity have no realistic alternative other than settlement.
Paragraph 11 sets the feasibility threshold. Realization must be more likely than not. If it is less, the matter moves to contingent liabilities and remains only in the notes.
Paragraph 12 requires that the amount be estimated with sufficient accuracy. Only in very rare cases can a liability not be measured, and in such cases it is treated as contingent.
Paragraph 10 closes a frequently used loophole. Liabilities arising from future business activities are not recognized. The example given by the standard itself is the installation of smoke filters, a liability that can be avoided by changing the method of operation and therefore does not exist today.
By the same logic, no provision is recognized for future machinery repairs or for expected business losses.
Paragraph 14 requires the most accurate valuation at the reporting date and provides three rules as appropriate.
When there is a large population of similar amounts, such as guarantees, the amount is weighted by the probabilities of the outcomes. When they are all equally likely, the midpoint is taken.
When it comes to a single obligation, such as a lawsuit, the most likely outcome is taken into account after reviewing the other possible outcomes.
When the effect of the time value of money is material, the amount is discounted at a pre-tax rate. Specific risk is reflected in either the rate or the amount, but never in both at the same time, because that would count it twice.
Paragraph 15 prohibits the recognition of expected gains from the disposal of assets. They are treated separately.
Paragraph 16 addresses reimbursements, for example from insurance. A reimbursement is recognized as a separate asset only when it is practically certain, does not exceed the amount of the provision, and is not offset in the balance sheet. Offsetting is allowed only in the statement of profit or loss.
Paragraph 17 requires review at each reporting date. The discount reduction over time is recognized as financing expense, not as an increase in operating expense.
Paragraph 18 provides a disciplinary rule. The provision may only be used for the expenditure for which it was created. It cannot be created as a guarantee and used for a fine.
Paragraph 19 requires provisioning for products sold up to the reporting date, based on prior experience. Not for products that will be sold next year.
Paragraph 20 requires recognition when the triggering event occurred before the reporting date, payment is probable, and the amount can be measured reliably. Otherwise, the matter is presented as a contingent liability.
Paragraphs 21 and 22 address contracts where the cost of performance exceeds the benefits. The provision is the lesser of the loss from performance and the suspension penalty.
So if a contract costs you 2,700,000 lek to see it through, but you exit it with a 900,000-lek fine, the provision is 900,000 lek.
Paragraphs 23 through 25 require recognition when the obligation arises from law or from a voluntary commitment. The amount includes liquidation costs and any possible fines. When it is associated with an asset, it is added to its cost.
Paragraph 26 requires two things simultaneously before the reporting date. A detailed official plan showing the affected business, locations, number of employees, expenses, and timeline; and the creation of meaningful expectations among the affected parties, whether by initiating implementation or by providing notice.
An undeclared internal decision is not sufficient. Without notice and commencement of implementation, there is no restructuring provision.
Paragraph 28 states that contingent liabilities are not recognized, only disclosed. There is one exception: provisions for the contingent liabilities of a business unit acquired in a business combination.
Cases with a very small probability require no explanation. And when the obligation is shared with another party, that party's share is treated as a conditional obligation.
Paragraph 30 addresses assets conditional on intentional asymmetries. They are never recognized as assets. They are only explained when the inflow of benefits is possible. And when they become almost certain, they are no longer conditional and are then recognized.
So a lawsuit that you have filed and expect to win is not included in the balance sheet. A lawsuit that has been filed against you and which you expect to lose is included.
SKK 6 does not contain any numerical examples. The following examples were constructed by us using rounded figures.
A manufacturer sells 2,000 units per year, with a two-year warranty. Experience from previous years shows that 31 percent of units require minor repairs at an average cost of 4,000 lek, and 11 percent require major repairs at an average cost of 15,000 lek.
Small repairs are 60 units, at a cost of 240,000 lek. Large repairs are 20 units, at a cost of 300,000 lek.
The guarantee provision at year-end is 540,000 lek. This is the large population method, paragraph 14(a).
Note that the base is the units sold up to the reporting date. Sales planned for next year are not included at all.
The same company has a lease agreement for a space it no longer uses. There are 18 months remaining at 150,000 lekë per month, so 2,700,000 lekë to fulfill the contract.
The contract allows termination with a penalty of 900,000 lek. According to paragraph 22, the provision is the smaller amount, namely 900,000 lek.
If the fine were 3,500,000 lek, the provision would be 2,700,000 lek, because then compliance would be the cheapest route.
Paragraph 32 requires the caption “Short-term provisions” for those realized within twelve months or within the normal cycle of operations. Guarantees are the typical example. Paragraph 33 requires the caption “Long-term provisions” for the others.
Paragraph 34 states where the expense goes: under the most related line item in the income statement. And the reduction of the provision goes to the same line item, not to other income.
Paragraph 35 requires for each class of provision a description, the expected realization date, the discount rate for long-term provisions, a reconciliation of the carrying amount between the beginning and end of the period, a brief description of the liability, an indicator of uncertainties, and any expected reimbursement. Comparative information for prior periods is not required.
Paragraph 36 requires that for contingent liabilities and assets there be a description, an estimate of the amount and the timing, an assessment of the financial effect, an indication of uncertainties, and the possibility of reimbursement. When any of these cannot practically be provided, this is stated.
Paragraph 38 provides a rare exception. When disclosure would seriously prejudice the unit's position in a dispute, it may be withheld, but the general nature and reason for the non-disclosure must be explained.
The first mistake is presenting doubtful accounts as liabilities under the name provision. Paragraph 6 clearly states that they adjust the value of the asset.
The second mistake is the provision for future repairs or for expected business losses. Paragraph 10 does not allow it, because the liability does not yet exist.
The third mistake is recognizing a contingent asset, usually a lawsuit that the business expects to win. Paragraph 30 prohibits it until collection becomes almost certain.
The fourth error is using a provision for a purpose other than the one for which it was created. Paragraph 18 prohibits it.
The fifth mistake is the failure to discount long-term provisions. When settlement is expected several years away and the effect is material, paragraph 14 requires discounting at a pre-tax rate.
More likely than not. This is the threshold for paragraph 11. Below this threshold, the matter remains a conditional obligation and goes only to the notes.
No. Paragraph 6 excludes it. It is an adjustment to the carrying amount of accounts receivable and is presented as an asset.
Only if the event that caused it occurred before the reporting date is payment possible, and the amount is estimated relatively accurately. These are the conditions of paragraph 20. Otherwise, the matter is explained.
Not only the decision. Paragraph 26 requires a detailed official plan and the setting of expectations for the affected parties through notification or the commencement of implementation.
It is reversed and the reduction is applied to the same line where the expense was recognized, in accordance with paragraph 34. The adjustment is shown in the reconciliation required by paragraph 35.
Off-balance sheet. Paragraph 16 requires that reimbursement be presented as a separate asset, and only when it is practically certain. Compensation is allowed only in the statement of performance.
No. Paragraph 39 requires prospective application.
The content of this page is based on reading the 2023 version on the National Council of Accountancy's website. The paragraphs are summarized in our own words; they are not verbatim quotes.
The PDF attached below is the November 2015 version with 49 paragraphs, and its numbering does not match the current version. For an accurate citation, consult the official 2023 text.
SIC 6 “Provisions, Contingent Liabilities and Contingent Assets,” updated in 2023, paragraphs 1 through 40. Effective date: January 1, 2025, with prospective application as provided in paragraph 39.
The standard refers to the “accounting law” without citing its number. The law in force is Law No. 25/2018 “On Accounting and Financial Statements,” as amended by Law No. 87/2026.
Links to other standards. Leases in IFRS 7, except for contracts with onerous conditions that remain here. Construction contracts in IFRS 8. Income tax in IFRS 11. Materiality in paragraphs 64 to 68 of IFRS 1.
The following document is the November 2015 version with 49 paragraphs, the one in our library that was in effect until the end of 2024. The version currently in effect is the updated 2023 version with 40 paragraphs.
Source of the official text: National Council of Accountancy, standards effective January 1, 2025.