Sisävara

Sisävara is a Finnish term that translates to "internal reserve" or "internal provision" and is most commonly encountered in the context of financial accounting and business. It refers to amounts set aside by a company to cover anticipated future losses or expenses that are not yet precisely determinable but are considered probable. These provisions are recognized when a company has a present obligation as a result of a past event, and 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.

Unlike a specific liability for which the amount and timing are known, a sisävara is more of an estimate based on the best available information. Examples include provisions for warranty claims, potential legal disputes, restructuring costs, or employee benefits such as long-term service awards. The creation and adjustment of sisävara accounts impact a company's profitability in the period they are recognized, as they represent an expense.

The concept of sisävara aligns with the prudence principle in accounting, which suggests that companies should anticipate potential losses but not overstate potential gains. By recognizing these internal reserves, a company aims to present a more realistic financial position and performance, ensuring that future obligations are adequately accounted for. Regulations and accounting standards, such as International Financial Reporting Standards (IFRS) or Finnish Generally Accepted Accounting Principles (Finnish GAAP), provide guidelines on when and how sisävara should be recognized, measured, and disclosed.