Question：Herinel has included a provision for compensation in its financial statements in respect of a legal claim brought by a former employee.
Which of the following is relevant evidence in respect of the provision?
A. The statutory maximum compensation payment in such cases.
B. Correspondence from the company's lawyers setting out their opinions on the likelihood of the claim's success.
C. Previous payroll details for the former employee.
D. Written representation from management.
The correct answer is:All the choices are correct.
The opinion of the lawyers will be persuasive with regard to whether a transfer of economic benefit is likely. As the matter is judgemental, it is appropriate to seek written management representations. Compensation is often calculated as a % or multiple of salary, so previous payroll details are relevant in verifying the amount of the provision, as will be the statutory maximum level of compensation.
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